-->Soros, Bacon Hedge Funds Fail to Gain From Bond Slump (Update2)

Aug. 20 (Bloomberg) -- The hedge funds of George Soros, Louis Bacon, Bruce Kovner and Paul Jones made little or no money in July as U.S. bonds slumped, leading to the biggest surge in yields in almost 20 years.

Funds that try to make money from changes in the price of currencies, commodities, bonds and stocks, known as macro hedge funds, lost on average 0.11 percent in July, according to the Credit Suisse First Boston/Tremont Hedge Fund Index.

Hedge funds aim to make money when markets fall as well as when they rise. Soros became a household name in the U.K. when he made $1 billion from the slump in the pound after the government abandoned sterling's peg to a basket of European currencies in 1992. Kovner and Jones boosted their funds two years ago by betting on moves such as the dollar's drop against the euro and yen.

''Managers couldn't justify the fundamentals behind the move, so they either took the other side and lost money, or stood aside and didn't make any,'' said Philippe Bonnefoy, head of Comas Management, a Bahamas-based independent adviser to the alternative investment business of Commerzbank Securities.

Few funds gained from the 90 basis-point gain in yields on 10- year Treasury notes because most didn't believe interest-rate futures predicting higher borrowing costs by March, Bonnefoy said. The jump in yields was the biggest monthly move since May 1984.

The yield on the benchmark 10-year Treasury note started rising in mid-June from a 45-year low of 3.07 percent as some investors speculated that stronger economic growth might fuel inflation, leading the Federal Reserve to raise interest rates.

By the end of July, the yield had reached 4.40 percent, and the bond traded at 4.39 percent today.

Performance

Bacon's Moore Global Investment Fund, based in New York and London with assets of $7 billion, lost 0.56 percent in the month through July 23, according to investors in the fund.

Jones, who manages $8 billion from Greenwich, Connecticut, saw his flagship Tudor BVI Global Fund rise about 0.02 percent during the same period, investors in the fund said.

Kovner's $10 billion Caxton Associates LLC, the world's largest hedge fund group, lost about 1 percent in the month in his flagship fund, while Soros's Quantum Endowment Fund rose 0.8 percent. Both are based in New York.

The hedge fund managers declined to comment on their performance.

An exception to the lackluster performance in July were the $5 billion Vega funds.

The group's Vega Select Opportunities Fund, run by Madrid- based Ravi Mehra, jumped 7.4 percent in July thanks to bets on the decline in U.S. Treasuries and in Japanese bonds, investors in the fund said.

Year to Date

So far this year, macro funds are up 10.27 percent on average, the CSFB/Tremont index shows. Bacon's fund climbed about 16 percent through July 23, while Jones' rose 13 percent. The Vega fund jumped 13.5 percent through the end of July.

Kovner has produced a return of about 2 percent this year for Caxton Global Investment Ltd., compared with an average of more than 20 percent annually. Last year, Kovner earned $600 million, according to Institutional Investor's Alpha magazine, making him Wall Street's best-paid banker.

Soros's $7.2 billion Quantum Endowment Fund, which in 2000 scaled back the number of big bets it made on currency and bond markets, has climbed 2.7 percent this year, Bloomberg data show.

Mark Schwartz, who started as chief executive of Soros Fund Management at the beginning of the year, has hired traders to help build the investment team and boost performance. Schwartz, the former head of Goldman Sachs Group Inc. Asia, hired former Goldman partner Jacob Goldfield in April. He also hired Colm O'Shea, who was a managing director in fixed income at Citigroup Inc.

Last Updated: August 20, 2003 05:47 EDT