Woodbine Capital Sees Possible Early Cycle Slowdown ~ market folly

Friday, December 18, 2009

Woodbine Capital Sees Possible Early Cycle Slowdown

Yesterday we got word that Paul Tudor Jones' main hedge fund BVI Global had stopped accepting new investments. From the market lows of this year to July, Tudor Investment Corp saw $1.3 billion in inflows and they've decided that they've reached an ideal capacity for now. While Tudor is a well known hedge fund with a storied past, we also want today to focus on another hedge fund that recently stopped accepting money as well.

Woodbine Capital is a hedge fund firm founded by two ex-Soros Fund Management players Josh Berkowitz and Marcel Kasumovich, as well as three other partners. George Soros' former executives launched their new fund in January with only $185 million and they already have $2.5 billion in assets under management. They have reached their initial target AUM and as such have stopped accepting new investments as of November 3rd. As of the end of October they were up 13.07% for the year. They employ a global macro strategy ala Soros Fund Management as they seek to play various trends by trading in all kinds of markets.

We recently got a glimpse as to what themes they will be watching going forward in their October letter to investors. Woodbine has made three main adjustments to their portfolio:

1. "The global housing theme is removed."
2. "Deeper emerging market demand/credit and fiscal consolidation are reduced to marker positions."
3. "Bullish fixed income exposure is raised in our themes of policy cooperation and exit strategies."

They then expand upon their #3 adjustment by saying that, "Regions that were early to exit from very accomodative monetary stimulus are priced for the gradual return to normal interest rates; the long workout in the US will encourage lower global real yields for a longer period and the risk premium in those markets is an opportunity."

Woodbine actually highlights a prudent point that while the global recession has just ended, we are possibly facing an early-cycle slowdown. They attribute this to the fact that the initial surge/recovery was driven largely by fiscal and monetary stimulus. But now that the supporting cast is slowly exiting stage right, inventories are starting to build again and everyone is focusing on demand. Woodbine anticipates that such an early cycle slowdown would put a damper on the potential rise in risk assets. In order to resolve the uncertainty they outline two scenarios:

1. "Global policy response encourages a rebalancing of demand away from the US"


2. "The world remains stubbornly tied to US demand, which grows at a very slow pace."

Their portfolio is reflective of such growth uncertainty given that their VaR (Value at Risk) is near the lowest levels since their inception. Overall, interesting thoughts from Berkowitz and Kasumovich's fund. Woodbine also laid out an in-depth look at the most talked about precious metal in a section entitled, Gold : The Anti-Goldilocks, which we've covered this morning in a separate post. For more updates from prominent hedge fund managers, head over to our hedge fund tracking series.

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