Think China is driving hedge funds into the red? Not exactly. It’s their addiction to oil that’s the real problem.
To be sure, it’s the shakiness of China’s economy along with the strong dollar that continues to pummel oil prices, which closed below $40 a barrel for the third day in a row Tuesday — the lowest in 6¹/₂ years.
Crude oil prices are down 24.6 percent this year, causing hedge-fund returns to tumble in tandem.
Oil prices began their fall last year, scorching a lot of the bigwigs. Still, a laundry list of big investors — Carl Icahn, Dan Loeb, David Einhorn, Seth Klarman, Leon Cooperman, Kyle Bass, Andreas Halvorsen, Larry Robbins, John Paulson, Ken Griffin and Steve Mandel — have been loading up on energy stocks this year, thinking the worst was over.
This year, hedgies jammed into anything that benefits from the rise of oil prices: exploration plays like Whiting Petroleum, liquid natural gas giant Cheniere Energy, frackers including Pioneer Natural Resources and solar energy play SunEdison.
One of the biggest losers appears to be Einhorn’s Greenlight Capital, which was already down 9 percent through July. Einhorn is the biggest investor in SunEdison — the most widely held energy stock among the billionaires and his biggest holding. The stock is down 40 percent over the past five days — and a massive 55 percent for the year, but Einhorn held onto it through June at least. Greenlight Capital Re, which invests in tandem with Einhorn’s hedge fund, is now down 27 percent for the year.
Others feeling Einhorn’s SunEdison pain include Loeb’s Third Point, Robbins’ Glenview Capital, Mandel’s Lone Pine and Cooperman’s Omega Advisors.
Another beloved energy play by a host of hedgies is Houston’s Cheniere Energy.
On Monday, Icahn wrangled two board seats after jumping into the stock with an 8.5 percent activist stake in early August. But Cheniere can’t escape the oil trap either, falling 14 percent over the past five trading days. Icahn Enterprises is also hurting; It has fallen 9 percent over the same period — and is off almost 26 percent this year.
Before Icahn made his play, Klarman’s Baupost, Halvorsen’s Viking Global, and Lone Pine were already in Cheniere.
Baupost, Viking and Bass’ Hayman Capital are also investors in another hedge-fund favorite, Pioneer Natural Resources, the fracker that Einhorn publicly called out as a big short in May. It’s down 16 percent over the past five days—and 28 percent this year.
Hayman joins Viking, Griffin’s Citadel and Paulson as big investors in Whiting Petroleum, a Denver exploration company. It’s down 23 percent over the past five trading sessions — and 55 percent this year.
Bass loaded up on energy plays like Whiting during the second quarter. The Texan’s main fund had fallen almost 12 percent through July — but was starting to come back before the latest market turbulence.
The big guys aren’t just invested in energy stocks, of course. But one dedicated energy fund, Dorset Energy, tops the list of losers for the year on HSBC’s much-watched hedge-fund list. The $200 million fund was down 24 percent through Aug. 7, after falling 27 percent in 2014.