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

David Yarrow On Growing His Hedge Fund And Shooting The Animals And People Of Africa - As A Photographer

Jul 23 2014 | 6:44am ET

While he’s always been a photographer, recent expeditions to Iceland, Ethiopia...

Lifestyle

Einhorns Busts At WSOP, Finishes In 173rd

Jul 15 2014 | 10:48am ET

Greenlight Capital founder David Einhorn’s World Series of Poker won’t end at...

Guest Contributor

Common Risk Parity Misperceptions

Jul 16 2014 | 11:02am ET

Over the past few years, risk parity has become a component of most investors’...

 

Sponsored Content

    Northern Trust Helps Hedge Funds Navigate Derivatives Regulations

    Jul 8 2014 | 10:48am ET

    The surge in derivatives regulation is among the most complex challenges facing the financial services industry today. Northern Trust’s Joshua Satten recently spoke with FINalternatives to share insights into the challenges presented by new regulation and explore how the industry is responding. Read more…

Publisher's Note