One of the City’s leading hedge funds has reportedly reaped gains of about $270 million this month after trades made by the firm paid off amid volatility in financial markets.
Caxton Associates is said to have profited after betting on the Japanese yen and placing a so-called “steepener trade” by buying short-maturity Treasuries and selling longer-dated US government debt.
These positions proved lucrative during sharp movements in markets earlier this month, when the yen rallied and short-dated Treasuries outperformed on growing expectations that the US Federal Reserve would soon cut interest rates.
This resulted in Caxton’s $4.5 billion Macro fund, which is run by the firm’s boss, Andrew Law, gaining 3.9 per cent in the first nine days of August, according to the Financial Times, while its $8.5 billion Global fund was up 1.1 per cent. Caxton did not respond to a request for comment.
The London-based group was founded by Bruce Kovner, the American billionaire, 41 years ago and is a “macro fund” that bets on broad economic trends, overseeing assets of about $13.5 billion.
Law, 58, who grew up in Cheadle Hulme, near Stockport, joined the business in 2003 and succeeded Kovner as its boss at the beginning of 2012. Law, who has made a fortune from his career as an investor, has been a big donor to the Conservatives and backed Liz Truss’s leadership campaign in 2022, when she briefly became prime minister but was felled by the market reaction to her mini-budget.
Caxton’s gains shed light on some of the profits enjoyed by investors that made canny trades before the market tumult this month.
Equities sold off sharply in response to mounting fears about the health of the American economy driven by weak US labour market data for July. This prompted investors to increase their bets that the US Federal Reserve would soon have to cut interest rates from their current 23-year high.
The sell-off was exacerbated by the sudden unwinding of a so-called “carry trade” involving the yen, when investors used the cheap Japanese currency to buy other higher-yielding assets. This trade has come under pressure after the Bank of Japan raised interest rates late last month, spurring a big rally in the yen, which in turn on August 5 caused the biggest one-day fall in Japanese equities since the 1987 Black Monday stock market crash.