Caxton Associates, one of the City’s prominent hedge funds, has reportedly amassed gains of approximately $270 million this month following successful trades made during recent financial market turbulence. The London-based macro fund, which wagers on broad economic trends, capitalised on the Japanese yen’s rally and a “steepener trade” involving the purchase of short-maturity Treasuries and the sale of longer-dated US government debt.
The firm’s $4.5 billion macro fund, managed by chief executive Andrew Law, saw a 1.1% rise over the same period. These lucrative positions proved fruitful amid sharp market movements earlier this month, as the yen strengthened and short-dated Treasuries outperformed due to growing expectations of an impending US Federal Reserve interest rate cut.
Caxton Associates, founded by American billionaire Bruce Kovner 41 years ago, currently oversees assets worth approximately $13.5 billion. Andrew Law, who hails from Cheadle Hulme near Stockport, joined the company in 2003 and took over as its leader at the start of 2012. The 58-year-old investor has amassed a substantial fortune throughout his career and has been a significant donor to the Conservative Party, even backing Liz Truss’s brief leadership campaign in 2022.
The hedge fund’s recent gains highlight the profits enjoyed by astute investors who made well-timed trades before the market upheaval this month. Equities experienced a sharp sell-off in response to escalating concerns about the US economy’s health, driven by weak labour market data for July. This development prompted investors to increase their bets on the US Federal Reserve’s imminent interest rate cuts from the current 23-year high.
The sell-off was further intensified by the abrupt unwinding of a “carry trade” involving the yen, where investors utilised the cheap Japanese currency to purchase other higher-yielding assets. This trade came under pressure following the Bank of Japan’s interest rate hike in late July, triggering a significant rally in the yen. Consequently, on August 5, Japanese equities suffered their most significant one-day fall since the 1987 Black Monday stock market crash.
As financial markets continue to navigate through volatility, the success of Caxton Associates’ recent trades demonstrates the potential for well-positioned investors to capitalise on economic trends and market movements.
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