Winton Group, once one of the world’s biggest and most successful hedge fund firms, has suffered a nearly 80 per cent drop in its assets over the past five years, with poor returns and client withdrawals accelerating in a tough 2020.
Investor assets at the London-based firm, founded in 1997 by billionaire scientist and quantitative investing pioneer David Harding, tumbled from $33.7bn at the end of 2015 to $7.3bn by late 2020, according to an investor letter seen by the Financial Times. Much of the decline came in last year’s market turmoil, when assets fell by around $12.5bn.
The firm has been one of the highest-profile hedge fund casualties of a coronavirus crisis that has produced a huge divergence between winning and losing managers. Its main Winton fund, which frequently made double-digit gains in the decade before the financial crisis, lost around 20.5 per cent last year — by far its worst year on record.
“To investors, it must have seemed in recent months that everything that could go wrong has”, wrote Mr Harding in a confidential investor update late last year.
Its Diversified Futures fund fell 16 per cent, although its $650m China fund gained 25 per cent and its $300m Trend fund rose 7.4 per cent.
In the letter, Mr Harding described investment performance as “disappointing” and the drop in assets as “substantial”, but said the scale and manner of the losses were in proportion to the risks it had been running.
Many computer-driven hedge funds, which often base their investment decisions on historical scenarios, were caught out in a wild year for financial markets when the coronavirus pandemic hit in 2020. Human traders were often able to react quickly to the brutal sell-off in risky assets in February and March and the subsequent huge rebound following central bank and government stimulus. Many quants, in contrast, were cutting their exposure to stocks just as markets were soaring.
Winton’s recent losses stand in sharp contrast to its fortunes in the wake of the financial crisis. Its main fund made a return of around 21 per cent in 2008, as many investors were suffering big losses, and in 2011 the firm sucked in $1 out of every $8 invested into hedge funds globally. The following year Mr Harding was estimated by the Sunday Times Rich List to be Britain’s highest-paid person.
At the start of 2016, the firm was ranked by HFM’s Global Billion Dollar Club as the world’s seventh-biggest hedge fund, ahead of Renaissance Technologies, DE Shaw and Elliott.
Winton’s losses in the first nine months of last year came from areas such as equities and currencies, according to another investor update seen by the FT. It also lost on so-called fundamental macro bets, driven by data on the underlying performance of economies.
Winton has suffered from a bold but controversial call by Mr Harding several years ago to turn away from a style of quant investing he helped develop in the 1980s when he co-founded rival fund manager AHL. So-called trend-following, which aims to profit from persistent market trends, had delivered lacklustre returns for years but in 2020 often performed better than other quant styles. In September Mr Harding told the FT he did not regret his decision and he was “quietly confident” in the longer term.