Swedish hedge fund IPM hit as pandemic upends quant models

One of Europe’s oldest computer-driven hedge fund managers has suffered a sharp drop in assets, the latest quantitative investment group to fall victim to the coronavirus-driven market turmoil.

Stockholm-based Informed Portfolio Management, which was set up in 1998 and which also has a London office, was for years one of the most respected European quantitative companies to use macroeconomic data to trade currencies, bonds and stocks. But its assets have tumbled from $8bn a decade ago to about $1bn this year due to investor outflows and performance losses, said people familiar with the investment group, with much of the fall coming in the last couple of years.

The losses come as many computer-driven hedge funds struggle to navigate a turbulent period for markets that began in February last year.

Wild market moves, such as the S&P’s fastest-ever descent into bear market territory last spring and the Reddit-driven GameStop frenzy, as well as enormous swings in economic indicators, have left many quants struggling to cope. 

Many funds have found their systems, which were based on analysing market and economic conditions over previous decades, could not read what would happen next during the unpredictable pandemic. US giants Bridgewater Associates and Renaissance Technologies, as well as London-based Winton Group, were among quant funds to struggle last year.

Systematic macro funds such as IPM, which base their trades on their analysis of macroeconomic data, rely on being able to understand how the different assets they trade will move in relation to each other. For them, changing linkages between assets have proved a major problem.

“For global tactical asset allocation portfolios, your biggest friend or enemy is correlation,” said one industry insider.

IPM, whose systems are based on the belief that market prices fluctuate around an asset’s fundamental value, suffered a loss of about 3.4 per cent in its main Systematic Macro fund last year, according to numbers sent to investors. This year it is down about 12.5 per cent to the end of March.

The fund lost money in March as the gap between higher and lower yielding markets widened, according to an investor letter.

IPM, which is owned by finance group Catella, raised billions of dollars from investors in the US, Europe and Asia, helped by gains of about 15 per cent in 2014 and further gains the following two years, according to numbers sent to investors and a person familiar with the company.

In 2019, it decided to shut its Systematic Equity fund, which struggled because of its bets on lowly valued stocks, which had underperformed. At the time the Macro fund was about $6bn in size, but it has fallen below $1bn this year.

A spokeswoman for Catella referred to the finance group’s public reports but declined to comment further.