US Hedge Fund Facing Closure Cites High Frequency Trading as Culprit
- Rinehart Capital Partners, a seven-year old fund of $100 million that invests in emerging market stocks, has called it quits after suffering disappointing trading results. Founder laments the "circus market".
High-frequency trading has been facing an uphill struggle in global financial markets to remove stigma directed at computerized trading solutions. A US-based hedge fund manager is the latest participant to use HFT as a scapegoat to account for his funds performance issues.
Rinehart Capital Partners’ founder issued a note to clients informing them of the closure of the $100 million fund. The Wall Street Journal reported that Andrew Cunaigan, founder of the fund, opined in the letter that HFT and the current market climate were factors behind the demise of the fund.
According to industry data, the seven-year old fund that invests in emerging market stocks saw positive results in 2010 and 2011, but experienced a major drop this year with a four percent decline year-to-date. Emerging markets have seen a substantial reduction in the amount of funds invested in stocks, following the comeback in developed markets such as the US on the back of tapering and QE. Thus emerging market equities have been slanted back into the red-zone.
Mr. Cunaigan’s main concern is the high-speed computerized trading style known as High-Frequency Trading (HFT) High-Frequency Trading (HFT) High-frequency trading (HFT) is a trading approach that requires the usage of high-powered computer applications to execute a large volume of orders within milliseconds. HFT employs pre-programmed trading commands and a multitude of complex algorithms.These are used to analyze multiple markets simultaneously while automatically executing trades based on preprogrammed trading scenarios for varying market conditions. Speed is of the essence with HFT, where traders with the fastest rates tend to be High-frequency trading (HFT) is a trading approach that requires the usage of high-powered computer applications to execute a large volume of orders within milliseconds. HFT employs pre-programmed trading commands and a multitude of complex algorithms.These are used to analyze multiple markets simultaneously while automatically executing trades based on preprogrammed trading scenarios for varying market conditions. Speed is of the essence with HFT, where traders with the fastest rates tend to be Read this Term. He is reported to have said: “This is a circus market rigged by high-frequency traders)and other algorithmic traders who prey on the rational behavior of warm-blooded investors. They only serve to further undermine the integrity of public markets, which will ultimately bring about their rationalization."
Emerging market financial instruments have been a breath of fresh air for investors on the basis of potential returns. However, industry data shows that since January, over $11 billion of assets have been withdrawn from emerging market-focused ETFs globally.
Mr. Cunaigan further expressed his concerns about the current trading landscape and believes the markets are just trading in a cyclical fashion with major issues still to come, adding: "Just as in previous boom-bust cycles, the seeds of destruction are sewn in the illusion of trend masquerading as truth, with momentum seeming to validate a widening gap between perception and economic reality."
Supporters of HFT have been defending the practice as a viable component of the current financial ecosystem. Governments and regulators have been looking at ways to minimise the use of HFT as they deem it the culprit behind major market disturbances, such as the 2010 Flash Crash Flash Crash The Flash Crash was a major stock market crash that happened on May 6, 2010 in which three major US indices crashed in the span of 36 minutes.In particular, the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite fell nearly 9% before rebounding within minutes. The event differed from other crashes in that most losses were recovered.The crash was believed to be caused in part by Navinder Singh Sarao, a British financial trader. Sarao was later charged with spoofing algorithms, utilized j The Flash Crash was a major stock market crash that happened on May 6, 2010 in which three major US indices crashed in the span of 36 minutes.In particular, the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite fell nearly 9% before rebounding within minutes. The event differed from other crashes in that most losses were recovered.The crash was believed to be caused in part by Navinder Singh Sarao, a British financial trader. Sarao was later charged with spoofing algorithms, utilized j Read this Term and most recently the Knight Capital glitch.
Kevin Houston
Kevin Houston, an industry practitioner and contributor to the UK government's report on HFT, believes that HFT needs further understanding before accusations can be made. In the 2012 Foresight Report, academic results demonstrated that there are no major problems associated with HFT.
Rinehart Capital Partners joins a growing list of hedge funds that are finding it difficult to please investors, previous FX giant, FX Concepts closed its currency fund in 2013 after tough market conditions drifted the fund into difficulties.
At one point, FX Concepts was regarded as the world's largest FX fund with over $14 billion in assets under management.
High-frequency trading has been facing an uphill struggle in global financial markets to remove stigma directed at computerized trading solutions. A US-based hedge fund manager is the latest participant to use HFT as a scapegoat to account for his funds performance issues.
Rinehart Capital Partners’ founder issued a note to clients informing them of the closure of the $100 million fund. The Wall Street Journal reported that Andrew Cunaigan, founder of the fund, opined in the letter that HFT and the current market climate were factors behind the demise of the fund.
According to industry data, the seven-year old fund that invests in emerging market stocks saw positive results in 2010 and 2011, but experienced a major drop this year with a four percent decline year-to-date. Emerging markets have seen a substantial reduction in the amount of funds invested in stocks, following the comeback in developed markets such as the US on the back of tapering and QE. Thus emerging market equities have been slanted back into the red-zone.
Mr. Cunaigan’s main concern is the high-speed computerized trading style known as High-Frequency Trading (HFT) High-Frequency Trading (HFT) High-frequency trading (HFT) is a trading approach that requires the usage of high-powered computer applications to execute a large volume of orders within milliseconds. HFT employs pre-programmed trading commands and a multitude of complex algorithms.These are used to analyze multiple markets simultaneously while automatically executing trades based on preprogrammed trading scenarios for varying market conditions. Speed is of the essence with HFT, where traders with the fastest rates tend to be High-frequency trading (HFT) is a trading approach that requires the usage of high-powered computer applications to execute a large volume of orders within milliseconds. HFT employs pre-programmed trading commands and a multitude of complex algorithms.These are used to analyze multiple markets simultaneously while automatically executing trades based on preprogrammed trading scenarios for varying market conditions. Speed is of the essence with HFT, where traders with the fastest rates tend to be Read this Term. He is reported to have said: “This is a circus market rigged by high-frequency traders)and other algorithmic traders who prey on the rational behavior of warm-blooded investors. They only serve to further undermine the integrity of public markets, which will ultimately bring about their rationalization."
Emerging market financial instruments have been a breath of fresh air for investors on the basis of potential returns. However, industry data shows that since January, over $11 billion of assets have been withdrawn from emerging market-focused ETFs globally.
Mr. Cunaigan further expressed his concerns about the current trading landscape and believes the markets are just trading in a cyclical fashion with major issues still to come, adding: "Just as in previous boom-bust cycles, the seeds of destruction are sewn in the illusion of trend masquerading as truth, with momentum seeming to validate a widening gap between perception and economic reality."
Supporters of HFT have been defending the practice as a viable component of the current financial ecosystem. Governments and regulators have been looking at ways to minimise the use of HFT as they deem it the culprit behind major market disturbances, such as the 2010 Flash Crash Flash Crash The Flash Crash was a major stock market crash that happened on May 6, 2010 in which three major US indices crashed in the span of 36 minutes.In particular, the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite fell nearly 9% before rebounding within minutes. The event differed from other crashes in that most losses were recovered.The crash was believed to be caused in part by Navinder Singh Sarao, a British financial trader. Sarao was later charged with spoofing algorithms, utilized j The Flash Crash was a major stock market crash that happened on May 6, 2010 in which three major US indices crashed in the span of 36 minutes.In particular, the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite fell nearly 9% before rebounding within minutes. The event differed from other crashes in that most losses were recovered.The crash was believed to be caused in part by Navinder Singh Sarao, a British financial trader. Sarao was later charged with spoofing algorithms, utilized j Read this Term and most recently the Knight Capital glitch.
Kevin Houston
Kevin Houston, an industry practitioner and contributor to the UK government's report on HFT, believes that HFT needs further understanding before accusations can be made. In the 2012 Foresight Report, academic results demonstrated that there are no major problems associated with HFT.
Rinehart Capital Partners joins a growing list of hedge funds that are finding it difficult to please investors, previous FX giant, FX Concepts closed its currency fund in 2013 after tough market conditions drifted the fund into difficulties.
At one point, FX Concepts was regarded as the world's largest FX fund with over $14 billion in assets under management.