In this article, we discuss 10 hedge funds that the economic recession is crushing.
2022 has been one of the worst years on record for equity hedge funds. According to data from HFR, a firm that tracks the performance of more than 5,900 hedge funds, equity funds lost close to 8% in the first five months of 2022 amid recession fears. These funds, which manage over $1.2 trillion in assets for clients, had reported losses of only 5.8% in the first five months of 2020, at the height of the pandemic crisis. These losses still compare favorably to the losses of the benchmark S&P 500 over the period, which fell 12.8% as of the end of May 2022.
Per news agency Reuters, disappointing earnings and worries about aggressive rate hikes, which have led to economic recession fears, are responsible for this drop in performance for hedge funds. The HFRX Global Hedge Fund Index slipped 1% in May, one of the worst months on record for hedge funds as recession fears reached fever pitch, bringing the total losses for the index up to 3.31% in the first five months of 2022. The funds that invested heavily in tech and biotech stocks have been hit the most.
Some of the top holdings of the worst performing hedge funds of 2022 include Microsoft Corporation (NASDAQ:MSFT), Amazon.com, Inc. (NASDAQ:AMZN), and Thermo Fisher Scientific Inc. (NYSE:TMO).
Our Methodology
The hedge funds that registered losses in 2022, based on data available with news platforms Reuters and Financial Times by the end of May 2022, were selected for the list. The exact losses are mentioned alongside the top holdings and performance of each fund in 2022.
Data from around 900 elite hedge funds tracked by Insider Monkey in Q1 2022 was used to identify the number of hedge funds that hold stakes in each top holding of the fund.
Source:Pixabay
Economic Recession is Crushing These Hedge Funds
10. Melvin Capital Management
YTD Loss as of March 2022: 21%
Melvin Capital Management is a New York-based hedge fund led by Gabriel Plotkin. In May 2022, Plotkin announced that Melvin was planning to unwind funds and return capital to investors as losses accelerated. In a letter to investors, per CNBC, Plotkin said that the past 17 months had been “incredibly trying” for the firm. Melvin was one of the worst-hit funds from the GameStop short squeeze of 2021. It holds large stakes in several growth stocks that have been battered amid rising rates this year. There are reports that Plotkin will soon start a new fund.
One of the top investments of Melvin Capital Management is Live Nation Entertainment, Inc. (NYSE:LYV), a company that offers entertainment services like concerts, ticketing, sponsorship, and advertising, among others. At the end of the first quarter of 2022, 51 hedge funds in the database of Insider Monkey held stakes worth $2 billion in Live Nation Entertainment, Inc. (NYSE:LYV), compared to 46 in the previous quarter worth $2.6 billion.
Just like Microsoft Corporation, Amazon.com, Inc., and Thermo Fisher Scientific Inc., Live Nation Entertainment, Inc. is one of the stocks on the radar of elite investors.
In its Q4 2021 investor letter, Diamond Hill Capital, an asset management firm, highlighted a few stocks and Live Nation Entertainment, Inc. was one of them. Here is what the fund said:
“Live entertainment promotion company Live Nation Entertainment, Inc. has seen strong demand for live experiences as concerts resumed in the U.S. and UK, demonstrating the impact of structural cost savings engineered during pandemic-related shutdowns.”
9. Select Equity Group
YTD Loss as of May 2022: 11%
Select Equity Group is an investment firm based in New York. The hedge fund focuses on long/short equity strategies to generate returns for investors and since its inception in 1990, Select Equity Group has been hugely successful. At the end of the first quarter of 2022, the fund managed a portfolio worth over $30 billion for clients. As the market becomes more volatile amid recession fears, long/short equity funds have suffered steep losses, per Financial Times, with Select Equity among the worst-hit.
One of the top holdings of Select Equity Group is SS&C Technologies Holdings, Inc. (NASDAQ:SSNC), a firm that provides software products and related services. Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Select Equity Group is a leading shareholder in SS&C Technologies Holdings, Inc., with 14.6 million shares worth more than $1 billion.
In its Q1 2022 investor letter, Diamond Hill Capital, an asset management firm, highlighted a few stocks and SS&C Technologies Holdings, Inc. was one of them. Here is what the fund said:
“SS&C Technologies Holdings, Inc. is the world’s largest hedge fund and private equity administrator. SS&C Technologies Holdings, Inc. provides important, hard-to-replicate services to its end markets, evidenced by its high level of recurring revenues and strong client retention. The company has shareholder-oriented management and a demonstrated track record of growing free cash flow through skillful acquisitions, sales execution and cost discipline.”
8. Pershing Square
YTD Loss as of May 2022: 18%
Pershing Square is an investment firm based in New York. It is led by Bill Ackman, one of the most successful investors on Wall Street, with a personal net worth of close to $3 billion. As inflation soars and interest rates rise, investors have been forced to dump shares of prominent growth stocks for safer bets. Ackman, who was bullish on streaming giant Netflix, has sold-off a more than $1 billion stake in the firm and suffered losses worth $400 million in the transaction. This is primarily why his fund is trading in the red this year.
Bill Ackman of Pershing Square
Pershing Square still holds a large stake in Netflix, Inc. (NASDAQ:NFLX), a firm that provides entertainment services. Among the hedge funds being tracked by Insider Monkey, Chicago-based firm Citadel Investment Group is a leading shareholder in Netflix, Inc. (NASDAQ:NFLX), with 5.5 million shares worth more than $2 billion.
In its Q4 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Netflix, Inc. was one of them. Here is what the fund said:
“We were quite active during the quarter, leveraging volatility to add 10 new names to the portfolio while exiting seven others. Among our new purchases was Netflix in the communication services sector. Netflix, Inc. is the global leader in the production and distribution of streaming entertainment, operating a high-quality subscription business with room for continued growth in a large addressable market. The stock has faced headwinds due to concerns around subscriber growth. We attribute this recent weakness to COVID-related production delays that have slowed the pace of new shows premiering on the platform and believe Netflix, Inc. has a strategic advantage in scaling its business given its large content library and lead versus peers in establishing local content studios and partnerships.”
7. North Peak Capital
YTD Loss as of May 2022: 28%
North Peak Capital is an investment management firm based in New York. It is managed by Michael Kahan and Jeremy Kahan. The fund manages a small equity portfolio with just seven holdings valued at over $724 million at the end of the first quarter of 2022. However, all nine holdings are from the growth sector. This has been a huge problem for North Peak in 2022 amid rising rates. All seven holdings of the fund have faced steep losses so far this year ranging from 28% to 60%. North Peak is also thus facing huge setbacks.
North Peak Capital holds a large stake in Workday, Inc. (NASDAQ:WDAY), the firm that markets enterprise cloud applications. At the end of the first quarter of 2022, 87 hedge funds in the database of Insider Monkey held stakes worth $7 billion in Workday, Inc. (NASDAQ:WDAY), up from 74 in the previous quarter worth $7.1 billion.
In its Q4 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Workday, Inc. was one of them. Here is what the fund said:
“We believe the weakness created an opportunity for us to add to an exceptionally high-quality payments franchise with an attractive growth and free cash flow profile and little credit or interest rate exposure. It also supported our efforts to maintain diversified IT exposure in a narrowing market; additions to our software-as-aservice (SaaS) holding Workday, Inc. during the quarter also bolstered this diversification, in which we seek to balance exposure to more widely owned mega cap names…”
6. Third Point
YTD Loss as of May 2022: 32%
Third Point is a hedge fund based in New York. It is chaired by Dan Loeb, a California-born money manager with a personal net worth of close to $4 billion. According to documents sent to investors, per Financial Times, two of the largest funds of Third Point, named Offshore and Ultra, were down 14% and 18% YTD, as of the end of May 2022. The sell-off in tech stocks is the main reason behind this, as Loeb has built up large stakes in many prominent growth stocks over the past few years.
One of the premier holdings of Third Point is SentinelOne, Inc. (NYSE:S), a firm that operates as a cybersecurity provider. At the end of the first quarter of 2022, 38 hedge funds in the database of Insider Monkey held stakes worth $2.1 billion in SentinelOne, Inc. (NYSE:S), compared to 39 in the preceding quarter worth $2.2 billion.
Along with Microsoft Corporation, Amazon.com, Inc., and Thermo Fisher Scientific Inc., SentinelOne, Inc. is one of the stocks that hedge funds are buying.
In its Q4 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and SentinelOne, Inc. was one of them. Here is what the fund said:
“We added six new positions in the fourth quarter. We see next-generation cybersecurity provider SentinelOne, Inc., although early in its growth lifecycle, as capable of taking share from legacy players in the antivirus and broader cybersecurity industry.”
5. Whale Rock Capital Management
YTD Loss as of May 2022: 33%
Whale Rock Capital Management is an investment firm that operates from Boston. At the end of March 2022, the firm had a portfolio value of more than $8 billion with investments concentrated in the technology sector. Financial Times reports that the fund, which has huge stakes in sectors such as media, telecommunications, and tech, was down 33% at the end of May 2022. The fund, which employs a long/short equity strategy, started facing huge losses from late 2021. The fund had ended 2020 with returns of over 71%, with 86% of this coming from long-only bets.
Alex Sacerdote of Whale Rock Capital Management
Whale Rock Capital Management has invested heavily in Alphabet Inc. (NASDAQ:GOOG), a California-based technology firm. Among the hedge funds being tracked by Insider Monkey, London-based investment firm TCI Fund Management is a leading shareholder in Alphabet Inc. (NASDAQ:GOOG), with 2.3 million shares worth more than $6.6 billion.
In its Q4 2021 investor letter, Vulcan Value Partners, an asset management firm, highlighted a few stocks and Alphabet Inc. was one of them. Here is what the fund said:
“In contrast, we made a different kind of mistake about a decade ago. Google, now Alphabet Inc., performed very well for us while we owned it. The company kept outperforming our assumptions and we kept lowering them to be conservative. “Trees do not grow to the sky.” The stock kept going up and our value grew but did not keep pace with the stock. It hit our estimate of fair value and we sold it with a nice gain, patting ourselves on the back. We kept following the company and what they actually did over the next several years was roughly double the assumptions we used to value it. Therefore, our value was too conservative, and we sold it too cheaply, missing many years of compounding. Fortunately, we experienced some volatility several years ago that allowed us to purchase Alphabet Inc. (Google) again with a margin of safety.”
4. RTW Investments LLC
YTD Loss as of May 2022: 34%
RTW Investments LLC is an investment management company based in New York. It is one of the premier funds on Wall Street that focuses solely on investments in biotech firms. RTW Flagship Fund, one of the elite offerings of the investment firm, was down close to double-digits at the end of May 2022, per Reuters news agency. Investments in the biotech sector overall have nosedived in recent months amid rising inflation and the prospect of a looming recession, which has forced investors towards value stocks with established business models.
A top holding of RTW Investments LLC is Thermo Fisher Scientific Inc. (NYSE:TMO), a firm that markets analytical instruments, specialty diagnostics, and laboratory products. At the end of the first quarter of 2022, 101 hedge funds in the database of Insider Monkey held stakes worth $7.9 billion in Thermo Fisher Scientific Inc., up from 96 in the preceding quarter worth $9.4 billion.
In its Q4 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Thermo Fisher Scientific Inc. was one of them. Here is what the fund said:
“Improving health remains a key impact theme for the portfolio, and over the past year or so we have increased our exposure to the health care sector, through the addition of Thermo Fisher Scientific Inc., a leading health care tools company, a leading provider of fertility benefit management services to self-insured employers that offers a rare win-win-win for employers, employees, health systems, and doctors, with clear savings and quality improvements.”
3. Maverick Capital
YTD Loss as of May 2022: 34%
Maverick Capital is a hedge fund based in Texas. It is led by Lee Ainslie, a Virginia-born investor with a personal net worth in the tens of millions. The portfolio value of the fund, at the end of the first quarter of 2022, was around $5 billion. In a letter to investors, Ainslie has acknowledged the losses faced by his fund, noting that a sizeable position in Korean firm Coupang, the broad decline in high-growth and mega-cap tech stocks, and the tumble in the biotech sector as some of the reasons behind the record losses for his firm.
Maverick Capital has invested a lot of money in Amazon.com, Inc. (NASDAQ:AMZN), a diversified technology firm with core interests in ecommerce. Among the hedge funds being tracked by Insider Monkey, London-based investment firm Citadel Investment Group is a leading shareholder in Amazon.com, Inc., with 4 million shares worth more than $13 billion.
In its Q4 2021 investor letter, Mercator International, an asset management firm, highlighted a few stocks and Amazon.com, Inc. was one of them. Here is what the fund said:
“Transformative technologies often generate euphoria. People are excited by the big new thing that is changing the world. We saw this pattern with the boom of westward canal transportation at the dawn of the nineteenth century. Railway stocks similarly attracted large numbers of eager investors a few decades later. Then came the electrification of America, the telephone, and the automobile industry, to name just a few transformative technologies.
The initial euphoric phase always ends with a reality check. Valuations come back to earth. At the end of the cycle, only a few companies remain standing. A shakeout has a way of clarifying the field of opportunities.
For example, readers may recall that when the internet bubble burst two decades ago, Amazon.com, Inc. stock suffered greatly but pet.com was gone. For those investors who had stayed on the sidelines, this was an excellent time to buy Amazon.com, Inc.. The company’s business model had shown its merits and competition was rapidly shrinking. The stock price was now also much more attractive.”
2. Perceptive Advisors
YTD Loss as of May 2022: 41%
Perceptive Advisors is a private equity firm based in New York. It was managed by Joseph Edelman, an investor with a net worth of close to $3 billion. Financial Times claims that the fund lost close to 20% in value in just the month of May this year as recession fears lead to a mass exodus from biotech stocks, one of the core investment sectors of Perceptive. In 2021, the fund posted a negative return of 28%, the worst performance on record since it was founded over two decades ago.
Perceptive Advisors holds a large stake in Iovance Biotherapeutics, Inc. (NASDAQ:IOVA), a clinical-stage biotech firm focusing on developing therapies for cancer patients. Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Perceptive Advisors is a leading shareholder in Iovance Biotherapeutics, Inc., with 12.2 million shares worth more than $203 million.
1. Tiger Global Management LLC
YTD Loss as of May 2022: 52%
Tiger Global Management LLC was one of the most high-profile casualties of the recession fears of 2022. The fund, based in New York and chaired by Chase Coleman, lost 14% in May alone amid the selloff in the tech sector. In an investor letter, the hedge fund said that the public fund performance was “deeply frustrating” since the business was “set up with duration to weather storms when they arise”. Tiger Global has refused to buckle despite pressure, doubling down on tech-related bets amid the selloff.
One of the top holdings of Tiger Global Management LLC is Microsoft Corporation (NASDAQ:MSFT), a Washington-based technology firm. Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Microsoft Corporation, with 27.8 million shares worth more than $8.5 billion.
In its Q1 2022 investor letter, Carillon Tower Advisers, an investment management firm, highlighted a few stocks and Microsoft Corporation was one of them. Here is what the fund said:
“Stock selection contributed the most while sector allocation was also positive. An underweight to communication services and an overweight to energy helped performance, while an underweight to consumer staples and an overweight to materials detracted. Stock selection was strong within healthcare and materials but was weak within information technology and industrials. Microsoft Corporation reported positive results driven by personal computing strength, but analysts were especially positive on its growth outlook for its Azure cloud-computing services.”
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This article is originally published at Insider Monkey.