FORTUNE — They still don’t get Ben.
The hedge fund managers who complained the loudest about the Federal Reserve’s stimulus efforts have benefited little from recent indications that the U.S. central bank may soon curtail its bond buying program.
Fed Chairman Ben Bernanke first indicated that the program could soon end in mid-May. That seemed to surprise the market, causing stocks and bonds to drop. Stocks have since recovered, but bond yields have continued to rise to a recent 2.7%.
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Also caught off guard: The hedge fund managers who just a few months ago were saying that quantitative easing must end soon.
Paul Singer’s Elliott Management, for instance, was up just 1.9% in the second quarter, trailing the S&P 500 (SPX) and other hedge funds. In early May, Singer wrote that if the Fed’s bond buying program continued, it would “ultimately destroy the value of money and savings while uprooting the basic stability of their societies.”
So you might guess that Singer, if he believed what he said, would have positioned his portfolio for the end of the Fed’s bond buying program, assuming that was a better bet than the end of society. That, though, doesn’t appear to be the case. For first half of the year, Singer’s funds, up 5.3%, were badly trailing the S&P 500, which was up more than 12%.
What’s more, Bernanke’s signals that the Fed’s bond buying program, often called quantitative easing, would begin to wind down as early as the fall has done little to quell Singer’s vitriol for the U.S. central bank’s policies. “QE has not solved the world’s economic problems,” wrote Singer in a letter to clients in late July. Instead, Singer said the Fed seemed to be “frantically” determined to generate inflation, which Singer called an “arbitrary wealth redistribution and confiscation mechanism.”
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David Einhorn’s distaste for QE doesn’t appear to have helped his portfolio either. In early May, the hedge fund manager who runs Greenlight Capital, equated the Fed’s stimulus efforts to force feeding the economy jelly donuts. “My point is that you can have too much of a good thing and overdoses are destructive,” Einhorn wrote in a piece for the Huffington Post. He said it was time for the Fed to restore the markets to their natural balance. That restoration, though, doesn’t seem to have upgraded Einhorn’s portfolio. Greenlight’s main fund was up 2% in the second quarter, compared to a 2.4% gain for the S&P 500 (SPX). Einhorn’s fund is up by less than 8% for the year.
That was better than most hedge funds. Through the end of July, the average hedge fund manager is up around 7%, or less than half of the 18% gain of the S&P 500 in the same time, according to hedge fund tracking firm Hennessee Group. But presumably those hedge fund managers didn’t believe as strongly as Einhorn that QE had to end.
Last year, hedge fund manager Seth Klarman basically called the Fed’s efforts to stimulate the economy immoral. “What kind of government entity cajoles savers to spend . . . tricks its citizens into paying higher and higher prices to buy stocks. . [and] drives the return on retirees’ savings to zero for seven years (2008-2015 and counting) in order to rescue poorly managed banks? Not the kind that should play this large a role in the economy,” wrote Klarman.
But there doesn’t seem to be an indication that Klarman positioned his fund to benefit from the end of QE. Klarman’s Baupost Group’s largest investment was in BP. Shares of the British oil company are down about 1% this year. Klarman recently told clients he was considering returning some of their money due to a lack of good investment opportunities.
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Commentators have floated a number of reasons as to why so many hedge fund managers have been so outspoken about the dangers of QE, when in fact there seems to be little sign the Fed stimulus efforts are causing inflation or societal instability or any other of the calamities the investors have been predicting. One theory was that the hedge funds managers were essentially talking their book. They had positioned themselves to benefit when QE ended, so they were turning up the rhetoric to try to push Bernanke’s hand.
The other theory was that they were just dumb. It appears to be the latter.
