Key Takeaways
- • Michael Novogratz left Fortress Investment Group and shut down his macro hedge fund after losing about $100 million in the last two months amid turmoil in Brazil, according to the Wall Street Journal.
- • The Fortress macro fund, roughly $1 billion of the approximately $2 billion Novogratz oversaw, was down 17.5% for the year through September, per a regulatory filing cited by the WSJ.
- • The losses followed a $150 million hit from a wrong-way bet on franc-related positions, after which Novogratz added to Brazil interest-rate positions that assumed rates would fall.
- • Facing prospective client redemptions, Novogratz cut losses and exited his Brazil positions, a decision other Fortress executives reportedly supported.
- • The episode sits within a broader wave of hedge fund and macro losses in 2015, including Everest Capital shutting six of seven funds and a Carlyle flagship fund hit by the commodities rout.
Summary
Michael Novogratz has departed Fortress Investment Group and closed his macro hedge fund, according to a Wall Street Journal report published on a Saturday in October 2015. The WSJ reported that the fund lost about $100 million in the two months leading up to the exit, following a $150 million loss tied to a wrong bet placed earlier. Novogratz oversaw approximately $2 billion in assets at Fortress, including $1 billion in the macro fund.
According to the Journal, Novogratz initially sought to recover after the fund was hit by the Swiss franc, but compounded the losses by building positions that assumed Brazilian interest rates would decline. When the trade moved against the fund and clients faced the prospect of redemptions, Novogratz cut his losses and exited the position. Other Fortress executives agreed with the decision, the report said. Citing a regulatory filing, the WSJ reported the fund was down 17.5% for the year through September. A Fortress representative did not immediately respond to a CNBC request for comment.
The Brazil episode unfolded against a political backdrop in which a multi-pronged corruption scandal had prompted investors to pull capital from Brazil, one of emerging markets' most widely held positions, and raised the prospect of impeachment proceedings against President Dilma Rousseff.
Fortress is not the only large investor affected by recent market volatility. Earlier in 2015, Everest Capital, a 25-year-old hedge fund firm, shut six of its seven remaining hedge funds after being hurt by the Swiss National Bank's decision to remove its currency cap against the euro. In August, a flagship fund of Carlyle Group was reportedly hit by the global commodities rout, with Vermillion Asset Management's holdings falling from an estimated $2 billion to about $50 million, according to the WSJ at the time.
According to the Journal, Novogratz initially sought to recover after the fund was hit by the Swiss franc, but compounded the losses by building positions that assumed Brazilian interest rates would decline. When the trade moved against the fund and clients faced the prospect of redemptions, Novogratz cut his losses and exited the position. Other Fortress executives agreed with the decision, the report said. Citing a regulatory filing, the WSJ reported the fund was down 17.5% for the year through September. A Fortress representative did not immediately respond to a CNBC request for comment.
The Brazil episode unfolded against a political backdrop in which a multi-pronged corruption scandal had prompted investors to pull capital from Brazil, one of emerging markets' most widely held positions, and raised the prospect of impeachment proceedings against President Dilma Rousseff.
Fortress is not the only large investor affected by recent market volatility. Earlier in 2015, Everest Capital, a 25-year-old hedge fund firm, shut six of its seven remaining hedge funds after being hurt by the Swiss National Bank's decision to remove its currency cap against the euro. In August, a flagship fund of Carlyle Group was reportedly hit by the global commodities rout, with Vermillion Asset Management's holdings falling from an estimated $2 billion to about $50 million, according to the WSJ at the time.
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