Risk Factor: Paul Singer’s Elliott Capital Dips In Q1

If hedge funds aren’t about outsized returns, what are they about? After years of underperformance in the industry, at least relative to total stock market numbers, managers, analysts and marketeers are telling the world that a hedge fund is for absolute returns, meaning it can perform in both good and bad economic times, giving stability to a portfolio.

Nobody has embodied that kind of stability in recent years like Paul Singer. The secretive manager of Elliott Management is always right, however, and he can’t always post positive returns. The first quarter of the year saw the money manager shed 0.5% from one of his funds, a very rare loss indeed.

Singer’s run ends

A 0.5% quarterly loss wouldn’t be a big deal for many managers but on that point, as on most things, Paul Singer is very different from the average manager. The Q1 2015 quarterly loss is the first such loss for Elliott Capital in any quarter, across all of his funds, in three years.

It’s only the twelfth time in 38 years that Mr. Singer has seen a quarterly decline in one of his funds. In a world where a hedge fund stands for consistency in good and bad markets, Mr. Singer was a god. Elliott Associates, his oldest fund, has returned an annualized 13.8% since its inception in 1977.

That fund has only ended eleven quarters with negative performance. That’s 11 out of 153 total. 1998 and 2008 are the only two years in which the funds have actually lost money, in the midst of world economic crises.

In the last five years those returns have slipped below that average, but Elliott Management is by no means lagging. The manager’s funds have returned more than 8% annualized since the end of last decade.

Elliott continues activism

Trying to find a hedge fund that has managed its risks better than Elliott Capital Management is a difficult, if not impossible, task. The hedge fund is certainly among the greatest of all time, and its campaigns tend to be both ambitious and intriguing.

The firm reached an extreme level of notoriety in recent years as it tried to compel Argentina to pay out on debt the country had defaulted on. In the course of that argument, Elliott committed what could be confused with an act of war.

While visiting a foreign port a boat belonging to the Argentinian Navy was confiscated by the hedge fund in lieu of payment. It was eventually forced to hand the boat back to the Argentinian authorities. The battle between the two continues to rage on, and Mr. Singer’s influence was one of the primary reasons that Argentina was forced to default again in 2013.

Right now Elliott is locked in a widely publicized activist battle with Alliance Trust, managed British investment company. The clash of cultures seen in the public bickering between the companies has made for great news stories, and may lead to big push for higher returns from Elliott.

The hedge fund owns about 12% of the outstanding shares of Alliance Trust and is currently calling for it to completely reform its business. Alliance reckons that Elliott is just trying to force the company to buy back shares. Elliott has been an investor in Alliance since 2011.

Looking for safety in numbers

If hedge funds are to be regarded as guards against volatility, then Singer’s Elliott management was a leader among them. With that goal in mind Elliott has managed to minimize losses across a huge range of strategies in the last four decades. His funds, as can be seen by the small number of loss making quarters, have been stalwart in protecting the value of investments.