Michael Hintze’s CQS Is Experiencing a Nightmare

CQS is facing its worst crisis since Michael Hintze founded the London-based credit-driven multistrategy firm in 1999.

At least three of its funds are among the worst-performing hedge funds this year after posting massive losses in March alone, when the global financial markets were in free fall. Other funds have posted smaller declines. These huge losses have raised questions about the future direction of the firm, which was managing $20 billion at the beginning of the year.

In March alone, the CQS Directional Opportunities Fund, which Hintze manages himself, lost more than 33 percent, according to a document from investment bank HSBC that tracks hedge fund returns. As a result, it was down 35 percent for the quarter. 

The Financial Times reported that the fund suffered an additional double-digit loss in April, bringing its year-to-date losses to a staggering 50 percent for the year. The fund was hurt by bets on the energy industry, according to the report.

As a result, the fund, which was managing about $3 billion at the beginning of the year, is now down to $2 billion.

In addition, the CQS ABS Fund, which specializes in asset-backed securities, lost more than 43 percent in March alone and fell roughly 42 percent for the quarter, according to HSBC.

The CQS Diversified Fund, which is a fund of CQS funds, lost more than 23 percent in March, essentially accounting for all of the fund’s losses in the first quarter. 

Many large institutions reportedly have money invested with CQS. They include the State Teachers Retirement System of Ohio, the Ohio Public Employees Retirement System, West Virginia Consolidated Public Retirement Board, and Texas County & District Retirement System. None of these institutions responded to a request for comment. 

The Texas fund made a $100 million investment with CQS Directional Opportunities Feeder Fund in December 2017 and two additional $50 million investments in 2018, according to documents on the pension fund’s website.

Other CQS funds have fared better, but they are much smaller.

For example, the CQS Global Convertible Arbitrage Master Fund lost just 4.7 percent in March and 4.5 percent for the quarter, according to HSBC.

The firm’s global relative-value fund, meanwhile, surged 40 percent for the quarter, while its Asian macro fund rose 11 percent for the period, according to a person familiar with the firm.

CQS declined to comment.

[II Deep Dive: CQS’s Hintze Is ‘Cautiously Optimistic’]

A person familiar with the firm stressed that most of the losses are unrealized and marked to market and that the firm has a stable, diversified platform. 

This person also said the firm has seen substantial net inflows of assets this year, although it is not clear when these flows took place. 

Hintze  began his career at Salomon Brothers in 1982 before moving on to Goldman Sachs, where he was head of U.K. equity trading, building the bank’s euro convertible and warrants business in London. He then joined Credit Suisse First Boston, where he created the business that would become CQS Convertible & Quantitative Strategies Fund. 

Last year Hintze personally made $350 million, ranking number 21 on Institutional Investor’s Rich List, the annual ranking of the highest-earning hedge fund managers. Altogether he has qualified for the prestigious ranking six times.

In 2019 CQS Directional Opportunities posted a 12 percent gain, while CQS ABS rose 8.1 percent, according to another person familiar with the firm.

So far, 2020 is shaping up to be the firm’s worst year since 2015, when most of its funds lost money, albeit by single-digit rates, according to HSBC.

CQS Directional Opportunities also lost about 3 percent in 2018.

CQS appears to have terminated its long-standing practice of providing performance results to HSBC, which did not include CQS’s results in its most recent weekly scorecard of hedge fund performance figures.