US hedge fund Schonfeld enters macro trading with ex-Citadel hire

Hedge fund Schonfeld Strategic Advisors has hired the former head of macro strategies at Citadel and his team, after the pandemic transformed making bets on global bonds and currencies into one of the industry’s hottest areas.

New York-based Schonfeld, which manages $7.8bn in assets and trades across a range of different strategies, has recruited Colin Lancaster and 11 people from Matador Investment Management, where Lancaster previously worked.

Lancaster previously headed up macro strategies at Balyasny Asset Management, before moving to take a similar role at Ken Griffin’s Citadel, which he left last year.

Macro managers, who bet on moves in global bonds, currencies and stocks, have often struggled over the past decade as trillions of dollars of central bank stimulus have suppressed market volatility, but Schonfeld’s move to establish a macro team comes after a bumper year for such managers.

Moves by the US Federal Reserve and other central banks to slash interest rates and a rush by investors into perceived havens sent government bond yields tumbling early last year and provided huge gains for funds holding such bets.

Chris Rokos’s Rokos Capital made about 44 per cent, its best year, while Brevan Howard, the firm Rokos previously co-founded, gained about 27 per cent. Andrew Law’s Caxton Associates, meanwhile, told investors in December it would shut its flagship fund to new money after making about 40 per cent, a record year of gains. 

Some managers such as Caxton and Brevan Howard have also been able to profit this year as inflation concerns have driven a rise in bond yields. Bond yields rise as prices fall.

“The Fed has set the stage for tapering [of quantitative easing] and more volatility. The size of the central bank experiment and the need to normalise policy is going to lead to more challenging markets”, which will be good for macro, said Lancaster, who is joining Schonfeld as global head of discretionary macro and fixed income later this summer. His team will be split between New York, London and Miami.

Last year’s strong gains and investor concerns that huge quantities of central bank and government stimulus could stoke inflation are starting to steer investors back to macro funds. Such funds received $900m of net inflows in the first quarter of this year, according to data group HFR, after three years of outflows.

“The fact that a number of large institutions, endowments and sovereign wealth funds are concerned about inflation — we’ve seen some of that flow to macro hedge funds,” said Heinrich Merz, head of hedge funds at Pictet Alternative Advisors. “A number have grown significantly over the past year.”

While Schonfeld already has a small allocation to computer-driven macro trading in its large quantitative business, the hiring of Lancaster and his team represents a new step into macro trading by human fund managers.

“It was very difficult for computers to understand what was happening in markets during the pandemic [last year]. Certain discretionary-type [human-run] strategies are able to understand those events better,” said Schonfeld chief executive Ryan Tolkin.

Large multi-strategy funds such as Schonfeld, which competes with funds including Millennium Management and Citadel, employ teams of traders across a variety of strategies, who run money for the firm’s main fund. Over the past 12 months Schonfeld has added 16 new investment teams globally.

In the first four months of the year, Schonfeld gained 8.1 per cent, after making 10 per cent last year, according to a person familiar with the matter.

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