Itchy Trigger Finger Costs Jabre Dearly During Japan Crisis

Mar 29 2011 | 1:16pm ET

Most of the hedge fund managers who took big losses earlier this month can blame the huge earthquake and tsunami in Japan. Philippe Jabre can only blame himself.

Jabre, who had been looking for a decline in Japanese stock prices to jump into the market, eliminated his hedges on the country's stock market the day the disaster struck, taking Jabre Capital Partners' Global Balanced Fund's exposure to Japan from 9% to 15%, The Wall Street Journal reports. But there was another unforeseen disaster on the horizon: the resulting nuclear crisis in northern Japan.

Bad news from the Fukushima Daiichi nuclear plant sent Japanese stocks tumbling further, and with them Jabre's funds, one of which was down as much as 10%. That number is something of limit for Jabre, who also ditched the U.S. stock market after losses totaling 10% in 2008.

"If we touch negative 10%, we get very, very, very nervous," Jabre, a former star trader at GLG Partners said.

So, on March 16, Jabre gave another fateful order: Sell everything. JabCap sold off all of its stocks, leaving it with a US$300 million loss.

Jabre reasoned, "If we're wrong, we set the firm back. But we'll be alive to fight another day."

He was wrong. While other hedge funds have seen their losses cut by a rally in Japanese markets, JabCap is stuck with its, and Jabre again can only blame himself.

Which is not to say that he would do otherwise: "This is the firm's style; even if there's just a one-in-six chance of a nuclear explosion, we couldn't take the risk."

"We couldn't take the risk of the Tokyo Stock Exchange closing down, so we sold."

Jabre said he consulted with four nuclear scientists as the crisis unfolded, but explained, "It's the first time a nuclear meltdown was at risk. It was hard to assess the consequences."

For JabCap's flagship Global fund, the consequences are clear: a 7% loss in March and a 3% year-to-date loss. Jabre has been in touch with his investors, trying to explain the mess.

"The reason we're still around is our risk management," he said. "We're telling clients that we've lost six months of performance, but we'll be back."


In Depth

Q&A: Brevan Howard’s Charlotte Valeur Talks Strategy

Sep 18 2014 | 11:18am ET

Charlotte Valeur chairs the board of Brevan Howard Credit Catalysts, an LSE listed...

Lifestyle

Hedgies Rock Out For Children's Charity

Sep 15 2014 | 8:40am ET

It's that time of year again—when hedgies trade in their spreadsheets for guitars...

Guest Contributor

Volkered: How Financial Sector Reforms are Creating Opportunities for Hedge Funds

Sep 16 2014 | 11:28am ET

New regulations have dramatically curtailed proprietary trading activity in investment...

 

Editor's Note

    Get A Sneak Peak Of The Alpha Pages

    Aug 25 2014 | 11:21am ET

    As many of you know, FINalternatives was recently acquired by the owners of Futures magazine, a firm called The Alpha Pages LLC. Today marks the soft-launch of a new sister site for both publications. As its name suggests, The Alpha Pages will cover all types of alternative investments, going far beyond the more well-known ones such as hedge funds and private equity. Read more…

 

Futures Magazine

September 2014 Cover

The London Whale: Rogue risk management

Credit default swaps brought down the London Whale and cost JPMorgan $6.2 billion. Here is how it happened.

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.