Hedge funds reap record profits from bets on QE

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Super-rich hedge fund financiers emerged as the big winners from the Bank of England’s money printing programme in 2012, as pensioners and savers were made to struggle with shrunken incomes.

Much of the high-rolling industry bet that quantitative easing (QE) would boost global markets and those that stuck to the strategy made record profits.

Hedge fund expert Philippe Bonnefoy said: “The masters of equity and credit trading strategies have done their homework in 2012 and reaped benefits turbocharged by an ocean of government-sponsored liquidity.”

The industry’s success will sit uneasily with savers and pensioners who have been condemned to rock bottom interest rates and reduced annuity payments caused by QE-induced low gilt yields.

Saga, the pensioner lobby group, has claimed that QE has contributed to a 9pc drop in real incomes among the over-50s since early 2008. And the Bank has conceded that the beneficiaries of QE have been the investor classes while those relying on income have suffered.

Last year saw a resurgence of some of the biggest and best-known hedge funds in the world, according to the latest figures collected by HSBC (LSE: HSBA.L - news) .

Michael Hintze, the founder of CQS, had generated 32pc on his $3.9bn (£2.4bn) flagship multi-strategy fund by the end of November (Xetra: A0Z24E - news) .

In his latest newsletter, he wrote: “We have witnessed massively accommodative monetary policies globally since the onset of the global financial crisis in 2008.” He added: “Overall, I believe central bank actions will continue to support credit and equity markets in 2013.”

Crispin Odey, the boss of Odey Asset Management, generated 26.6pc returns at the end of November, turning his flagship fund around from a heavy loss of 21pc in 2011. Lansdowne Partners, the London-based fund that correctly forecast the banking crisis in 2007, made 16pc on its $6bn equity diversified fund and 14.8pc on its global financial fund.

Michael Farmer, co-treasurer of the Tory party, had another top performing year investing on commodity markets. His flagship fund at Red Kite was up 15pc at the end of November.

The Bank has pumped £375bn of money into the economy since the start of its QE programme in 2009, while central banks in America and Japan have unleashed hundreds of billions of dollars in a radical global bid to jump-start the economy. The effect has been to boost the price of assets, from equities to houses, and reduce gilt yields, according to analysis by the Bank.

One hedge fund expert said: “While economic fundamentals have been poor during 2012, with sluggish or negative growth and depressed confidence, the use of QE has pumped tonnes of money into the system which has to go somewhere, so it usually winds up in equities or bonds.”

Hedge funds outside the “masters” category struggled during 2012. The HFRX, a widely used measure of industry returns, is up by just 3pc over the past year, compared with an 18pc rise in the S&P 500 share index. SS&C, an American hedge fund administrator, said investors were pulling money out of hedge funds faster than at any time since 2009.

John Paulson , the manager who made billions betting that the subprime mortgage bubble would burst, has had another terrible year. His $2.5bn Advantage Plus fund was down 24.4pc at the end of November, according to HSBC, after a fall of 52.6pc last year. Paulson & Co has reportedly suffered heavy redemptions this year.

In London, hedge fund groups, including Henderson and Union Investment, reportedly started cutting 10pc of their workforce in the wake of disappointing performances. Across the industry hedge funds have been cutting the fees they charge in a bid to retain clients.