Oh, Henry, your funds are cellar dwellers: December brought disaster
By Brett Arends/ On State Street
Boston Herald Finance Columnist
Tuesday, January 24, 2006 - Updated: 09:38 AM EST
John Henry’s hedge funds suffered fresh, disastrous losses of more than $400 million last month, new figures reveal.
His investment company admits it lost almost one dollar in eight in a few short weeks as it was caught out by events such as the warm weather, which depressed natural gas prices, and movements in the Japanese yen.
That marks a terrible end to Henry’s worst-ever year in the markets.
And it may have cost the Red Sox owner more than $60 million in lost income — or nearly enough for five Johnny Damons.
The facts: John W. Henry & Co. manages $3.1 billion, charging between 2 to 3 percent a year in fees plus 20 percent of any profits.
What do his investors get in return?
No fewer than 10 of the 11 funds lost money last year, and for most, the losses were huge. His $1.7 billion Strategic Allocation fund crashed 12 percent in December and 19 percent for the year. Henry’s biggest currency fund lost 21 percent in 2005; his bond fund 16 percent. The figures come from the company.
During a year when oil and gas companies did so well that Congress contemplated a windfall tax, his Financial and Energy fund managed to lose 16 percent.
How do you lose money on oil and gas these days?
Chief investment officer Mark Rzepczynski calls these “significant reversals,” adding, “It is unusual for us to have all programs generating negative performance.”
When there are no profits, Henry misses out on his 20 percent cut. How much is that worth? If the funds had instead earned a typical 10 percent return last year, Henry’s firm would probably have pocketed more than $60 million in extra fees.
Johnny Damon’s new deal at the Yankees: $13 million a year.
Why are Henry’s funds doing so badly?
Rzepczynski blames last year’s big losses on “economic events that were not predicted by market professionals.” Among them: Hurricane Katrina and its aftermath, and changing inflation and growth expectations.
It makes you wonder what investors are paying for. If they want a fund that is at the mercy of random events, they could buy a cheap Fidelity index tracker and save millions on fees.
On Nov. 8, we broke the story that Henry’s funds were heading for a terrible year.
The Globe reported exactly the same thing a mere five weeks later, presumably for those who think news, like revenge, is a dish best eaten cold.
Markets are volatile and you can expect traders like Henry to have a bad month or even a bad year. But it’s starting to hurt his long-term record. Over the past three years, Wall Street has gained 50 percent. None of Henry’s funds has come close to that, and six have actually lost money.
The reason? When you strip away the technical jargon, Henry is just playing the old speculative game of betting on trends.
The problem: Lots of people are doing the same thing.
And markets, to put it mildly, don’t always do what you expect. Rzepczynski confesses the funds were repeatedly caught out last year when price movements abruptly changed course.
As for the future, everyone from investors to Sox fans are hoping for better. Don’t count Henry out just yet.
“We have strong confidence that the future will be unpredictable,” says Rzepczynski, unconsciously echoing the old J.P. Morgan joke that the stock market “will fluctuate.” And, he adds, “The trends for the next 12 months cannot be determined at this point in time; but wherever these trends exist, we will use our models to exploit the opportunities.”
I think that means: Wait till next year!