By Svea Herbst-Bayliss
BOSTON (Reuters) - After years of waiting and watching from afar, hedge fund Fir Tree Partners is spending $410 million from its dislocation funds on stocks, pockets of the credit market and other securities, sure the historic market sell-off made new bargains.
The $3 billion hedge fund, known for winning bets on the overheated housing market and making money in credit crises, has put roughly 30% to work and is scouring all sectors for opportunities as markets seesaw, a person familiar with the firm's trading told Reuters.
Fears about the corona virus sparked panic selling and fears about growth are weighing on them still even as a government stimulus packaged prompted buying.
Fir Tree, which has been managing money since 1994, began raising money for its Capital Opportunity Dislocation Fund and Value Dislocation Fund in 2013 and 2014, years before other investment firms created vehicles designed to eventually profit from an economic downturn or market drop.
Its pool is different. It has a broader investment mandate that permits buying in virtually all sectors, including capital structure arbitrage, special situations and real estate. There are also fixed investment triggers that strip out human emotion on calling when it is time to buy.
Firms including Sixth Street Partners and Centerbridge Partners LP are now unleashing capital in portfolios earmarked for a crisis. These funds are likely to profit in a year other investments are nursing heavy losses. The average stock-focused hedge fund has lost 16% this year through the middle of March, Goldman Sachs (NYSE:GS) data show, and the S&P 500 Index has lost 21% since January.
Fir Tree's mandate lets managers buy only after a 12% decline in the S&P 500 Total Return Index or a 250 basis point spread widening in the JPMorgan (NYSE:JPM) Global High Yield Index. In late 2018 when stocks dropped, the signals said it was time; the commitment period had ended and a two year clock to put the money to work started ticking.
Unwilling to chase returns as stocks quickly rebounded to new records in 2019, Fir Tree however held off. It told pension funds, endowments, and sovereign wealth funds that made commitments of between $10 million and $25 million to the fund that there was no pressure to participate yet, the person familiar with the trading said.
The team has until the end of 2020 to spend the full amount.