Odey’s Hedge Fund Surges Record 38% on Mega Short-Bond Trade

(Bloomberg) -- Crispin Odey's flagship hedge fund has bounced back with a record gain as his highly leveraged bets against government bonds paid off.

The Odey European Inc. fund surged 38.4% in February, the best monthly return in almost three decades of trading, according to an investor update seen by Bloomberg. The performance lifted this year's gains to 51% -- a rare bright spot for a fund that's suffered losses in five of the past six years.

After getting burned by betting against stocks in booming markets, Odey is now targeting long-dated government bonds amid expectations that a post-pandemic economic recovery will fan inflation. The fund's short exposure to bond trades totaled almost 800% of its net asset value at the end of January, mostly thanks to a single U.K. government security that matures in 2050, according to a separate investor letter.

“The extreme bubble in the valuation of the long end of bond markets, which is the direct result of central bank buying, presents investors with the chance to enjoy the next forty years, sitting on the right investments,” Odey wrote to clients last month.

A spokesman for London-based Odey Asset Management declined to comment.

The fund benefited as the yield on the 0.625% bond due October 2050 surged almost 50 basis points in February. That was the most for a month since January 2009, and followed a global sell-off in long-dated bonds.

Good news has recently been in short supply for Odey, who is currently fighting sexual assault charges that have clouded his future as a money manager. At the start of this year, he needed to make a return of 203% just to recover losses incurred since 2015, according to Bloomberg calculations.

The Odey European fund managed $1.8 billion of assets at its peak in 2015, but shrunk to as low as 93 million euros ($112 million) as of January, leaving it with a relatively large proportion of assets that may be difficult to sell. Assets have increased since then due to portfolio gains.

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