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Wellington hedge fund Salthill suffers losses in biotech missteps

A biotechnology-focused hedge fund run by $1tn investment giant Wellington Management has been left nursing double-digit losses since the start of last year, even as the pandemic has sent the price of the biotechnology stocks it trades soaring.

Boston-based Wellington suffered a loss of around 11.6 per cent in its Salthill Partners hedge fund from the end of 2019 until the end of last month, according to investor documents seen by the Financial Times.

Over the same period the Nasdaq Biotech index has risen 28.5 per cent. Salthill’s loss shows that some funds have struggled to profit from the biotech sector even though stocks with higher growth prospects have rallied sharply and biotech has received a fillip from positive news on coronavirus vaccines.

The fund focuses on smaller-cap companies and was running low levels of risk at the end of the first quarter because of concerns about the impact of coronavirus on smaller-cap companies, said a person familiar with the fund’s positioning. 

Wellington declined to comment.

The Salthill fund, which has been running for nearly 20 years, raised hundreds of millions of dollars in early 2018, helping lift its assets to close to $1bn, according to fund documents seen by the FT. That came after five years of double-digit gains in the previous six years.

But the fund gained just 2.8 per cent last year, while the Nasdaq Biotech index rose 25.7 per cent, as it was slow to capitalise on the sharp market rebound from mid-March driven by central bank stimulus. It lost 8 per cent in March 2020’s market slump and suffered further losses in April and July that year. Documents show that while the fund made money on its bets on rising prices, it suffered from its bets on falling prices.

In the first four months of this year the fund has fallen 14 per cent, the documents show, while the Nasdaq Biotech index has gained 2.2 per cent. Some of the fund’s biggest positions have been hard hit this year, including Kodiak Sciences, down 45 per cent since the start of the year, and Seagen, down 11 per cent.

This year has proved particularly difficult for traders as the rally in biotech and other sectors with high valuations has started to fade. After a strong rally in the first five weeks of the year, managers have had to cope with a sharp sell-off as investors have switched out of more expensive so-called “growth” areas of the market and into beaten-down, so-called “value” sectors as lockdowns start to lift and economies rebound.

Salthill suffered losses of more than 8 per cent in January and March this year. It is now down 1.3 per cent over the past three years, whereas the Nasdaq Biotech index has gained more than 14 per cent.

Other hedge funds have also struggled this year. New York-based Perceptive Advisors’ $3.1bn Life Sciences fund has lost just over 25 per cent to mid-May, according to figures sent to investors, compared with a 1.3 per cent fall in the Nasdaq Biotech. That comes after it gained around 29 per cent last year.

Perceptive did not respond to a request for comment.

laurence.fletcher

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