JF Capital est. 2011

In a year where the average hedge fund squandered 3% of assets to unforgiving markets, it has been a pleasure, for some, not to have lost money.

John Paulson, astute and savvy enough to have profited from the CLO saga, has seen nearly half of client capital wiped out and a number of difficult questions asked.

Why should a hedge fund lose in falling markets?
Why is volatility bad for a hedge fund?
Why are we down by far more than an almost any market or index for the year?

The truth behind the appalling industry performance isn't to be found in any of these concerns. Indeed, particularly agile managers have managed to negotiate the year in the black, and others less agile have profited from the flight to cash - buying US Treasuries on 01/01/11 would've netted 1.4%. A handsome return for the laziest possible investment strategy.

For a fund in its infancy, positive returns month on month for 3 months is certainly a good place to start. We intend to build on this early success, remembering the lessons from 2011: without a credible macroeconomic picture and a light footed approach to positions, it is incredibly easy to be entrenched into one view, and be caught out.

Whether it be long and wrong, or more likely in our case, short and sorry, the split second evidence mounts against a position, the only thing to do is close, as per the adage:
"The markets can stay irrational far longer than you can stay solvent."

Mr.Paulson, Mr. Corzine and others fell foul of this simple truism in 2011 and there will be many more lining the financial obituaries in 2012.

JF Capital Fund I returned 9.8% to investors in 2011. Happy New Year.