Ex-Soros CIO Bessent Leads Key Square To 30% Gain on Yen Bet
(Bloomberg) — Scott Bessent, a former Soros Fund Management investing chief, posted a 30% gain in his macro hedge fund this year through Tuesday — and he told clients he’s betting on a rising yen, gold and oil in 2023.
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The Bank of Japan’s surprise decision to widen the yield curve control band for 10-year government bonds marked a “seminal moment for global monetary policy and financial market liquidity,” Bessent, 60, told clients of his Key Square Capital Management in a Dec. 20 letter.
He sees the central bank’s decision as the first step in ending more than a decade of aggressive easing, he said.
Bessent made about 300 basis points in returns on the bet since the BOJ’s Dec. 19 move with positions in long-dated, out-of-the-money yen calls against the US dollar, an investor said, requesting anonymity to discuss Key Square’s performance.
The fund made money earlier this year by placing short bets and placing wagers on natural resource stocks as well on technology and other growth shares.
The investor stated that his Key Square II, which is a more leveraged version, rose 54% through Tuesday.
Key Square’s spokesperson declined to comment.
It’s been a banner year for many macro funds, with traders including Chris Rokos, Said Haidar and Michael Platt producing some of the top returns. Bridgewater Associates was the exception, a giant firm that Ray Dalio founded, and which lost money in October, November, and gave up a large portion of its gains.
Investors were told in the letter that Bessent believes the yen’s upswing will continue and that global bond market will be affected unless other central bank adopt more neutral policies.
Dollar Dipping
The US dollar, which surged against most currencies this year, is heading for a multi-year decline, he said — especially against the yen, gold and some emerging-market currencies.
In part, that’s because China, Russia, the Gulf Cooperation Council members and other nations have been moving toward less reliance on the US currency.
This trend will be good for gold, as emerging market central bank increase their gold reserves.
He predicts that the yield curves in the world will rise as Japanese investors buy foreign bonds to return money to local investment.
He’s betting that China’s recent reopening from its stringent Covid lockdown will boost the country’s economy and translate into higher demand for commodities and consumer goods and cause a spike in domestic and foreign travel.
That economic jolt from China, combined with the BOJ’s tightening, will eventually provide “extremely attractive entry points for multi-year long positions in some developed and emerging bond markets,” Bessent said.
Bessent entered 2022 after a two-year losing streak. His flagship fund fell 5.1% in 2020, and 7.2% 2021. Clients have heard him say he is looking to outperform in light of increased volatility in currency markets.
Bessent was at Soros Fund Management in 2012 and 2013, when he made 15% of the yen short. According to an investor in his fund, he told clients that he thinks there would be another currency move.
Bessent also told clients he intends to use a portion of this year’s gains to set up a foundation to promote increased financial literacy among students and adults in his home state of South Carolina.
(Additional comments in the 11th, 12th and 13th paragraphs on dollar declines and gold gains and plans for a Foundation in the last paragraph.
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