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AI profile: Balestra’s bearishness pays off in the long run

Balestra Capital’s global macro fund is up 110% year-to-date. Its market analyst, Ryan Atkinson, talks to Helen Avery about how it has played the sub-prime market fallout to its advantage.

With hedge funds reporting losses left, right and centre, and many managers admitting to have given up this year’s gains, it is refreshing to find one that is enjoying its best year yet. Global macro fund Balestra Capital Partners is up a staggering 110% year to date. "It’s nice to be right," says Ryan Atkinson, market analyst at Balestra Capital. "Of course, we’d like to be right in a more timely fashion but that isn’t always possible." Atkinson is referring to Balestra’s long-standing bearish attitude, which has sometimes been criticized.

It was founder Jim Melcher’s bearish attitude to the tech bubble that led to the establishment of the hedge fund. Melcher was running his own traditional long-only money management firm when, in 1998, he returned money to investors realizing he could no longer produce returns because of the looming tech bubble. Instead, he set up a long/short equity fund that has morphed into Balestra’s global macro fund.

As early as the summer of 2005, Balestra started shorting US mortgage Reits and housing stocks. "We knew housing was going to be a considerable problem, but we just kept getting burnt. House prices kept rising," says Atkinson. Balestra also believed that a global credit bubble was forming, and last year shorted junk bonds and the CDX index.

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