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'It wasn't meant to be like this': Hugh Hendry's farewell letter

'It wasn't meant to be like this': Hugh Hendry's farewell letter

'I antagonise people, It's part of my skill-set. You can observe it empirically, and you have to draw the conclusion that I aggravate my surroundings and my superiors.'

This was the brutal self analysis from Hugh Hendry (pictured), offered when Citywire had exclusive access to the outspoken fund manager almost 15 years ago. 

Back then he was building a reputation at Odey Asset Management. He had finally found a mentor in Crispin Odey after difficult spells with Baillie Gifford and Credit Suisse. Less than three years later he quit Odey to set up his hedge fund boutique Eclectica. 

Yesterday Hendry wrote to investors telling them he was shutting down the firm after a torrid three years, which has seen Eclectica haemorrhage assets.

As a ruthless self promoter, Hendry's letter makes a fascinating read. He has not gone down without a fight, with the bulk of the four page letter offering some justification for his investment thinking. The fact he is closing down his firm something of a footnote. 

He are some extracts from the letter:

'What if I was to tell you I wasn’t bearish on anything? Is that something you would be interested in?

'It wasn’t supposed to be like this and it is especially frustrating as nothing much has gone wrong with the economy over the summer. If anything we feel more convinced that our thesis of a healing global economy is understated: for the first time in an age all parts of the world are enjoying synchronised economic momentum and I can’t see it ending for some time.

'But let me bow out by sharing my team’s views. For the implications of a sustained bout of economic growth are good for you. It’s good because it should continue to underwrite a continuation in the positive performance of global equities. I would stay long.

'It’s also good because I can’t see interest rates rising abruptly to interrupt the upward path of equities. And commodities have already acknowledged the upturn in the fortunes of the global economy and are likely to trend higher still. That’s a lot of good news.

'But it is bad news for me because funds like mine are required to demonstrate negative correlation with risk assets (when they go up like this I go down…), avoid large drawdowns and post consistent high risk adjusted returns.

'Oh, and I forgot, macro hedge fund clients don’t like us investing in the stock market for the understandable fear that we concentrate their already considerable risk undertaking. That proved to be an almighty puzzle for a fund like mine that has been proclaiming the stock market as a “safe-ish” bet ever since 2013.

'If an inflationary path like 1966 is gestating then I fear there is very little chance that anything timely will be done about it. Rate hikes will continue to be sparse, we only have one quarter point hike predicted between now and the end of 2019, which if fulfilled will be highly unlikely to spark a severe recession. Most likely the US economy will continue to grow and the labour market will tighten making a larger adjustment to rates in the future inevitable.

'My contention is simply that fixed income volatility has over shot to the downside, that such moments are fleeting and that you are not
necessarily dependant on a correction in treasury prices.

'Sadly I will be unable to participate with such trades during the next upheaval in global markets with The Eclectica Fund but I hope that this commentary has at least roused you into contemplating scenarios that are presently deemed less plausible.

'It remains only that I thank you for the great honour of having been responsible for managing your capital and to wish you all great financial fortune.'

For the full letter, click here.  

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