Odey’s shrinking fund takes big bet on UK debt

Crispin Odey has taken a high conviction bet against UK government debt, but the leveraged position could have implications for economies of scale in his quickly shrinking fund if it goes wrong.

Odey's shrinking fund takes big bet on UK debt

Via his €173m European fund, Odey has bet against a long-dated UK government debt future expiring in June, the Financial Times reported on Thursday. The leveraged position represents 154.8% of the fund and needs bond yields to rise in order to be in the money.

The Office of National Statistics will release two more monthly inflation figures before the future expires, although it is possible the derivative could rollover, albeit at a cost to the fund.

Architas investment director Adrian Lowcock told Portfolio Adviser the cost of running the fund could become a problem if assets continue to shrink.

“If he gets this one wrong, after making two big loses in the last two years, you’d expect him to effectively wipe his gains for this year, and hit a fund that is already quite small. Below £100m the economies of scale start to work against you.

“If it’s a third year of poor performance more investors are going to ask if the fund is right for them.”

Odey’s fund fell 49.5% in 2016 and 21.7% last year. The fund has also suffered outflows, with assets under management falling from €2.5bn (£2.17bn) at the start of 2015.

However, in the year to date Odey’s bearish strategy has seen the fund return 12%.

The Financial Times reports Odey is bearish on the UK due to inflation fears and concerns about the impact of the Bank of England’s quantitative easing programme on the economy. He said the bank was encouraging people to spend rather than save.

“That’s quite a high conviction view,” Lowcock said. “Unless there’s a collapse in sterling, what’s going to cause an inflation spike?”

The Cayman-domciled fund invests in securities, bonds, currencies and related financial instruments.

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