The US Securities and Exchange Commission has raised concerns about Rokos Capital Management aCentre County Reporter the hedge fund was forced to pledge large amounts of cash to its banks as collateral when an outsized bet on US Treasury bonds backfired earlier this month.
SEC Chairman Gary Gensler raised the hedge fund in talks with UK regulators this week aCentre County Reporter he faced bigger margin calls than his peers, according to people familiar with the talks.
The US regulator does not oversee the London-based companies Rocos but is on high alert for tensions in financial markets aCentre County Reporter a series of recent explosions in the banking sector. UK regulators agreed to keep an eye on the hedge fund, one of the people said.
The talk highlights official fears that the rapid unwinding of concentrated hedge fund bets could exacerbate tensions in the US Treasury market, which underpins asset prices around the world.
The episode stems from the failure of Silicon Valley Bank earlier this month and concerns about the bank’s overall health US regional banking system. ACentre County Reporter the collapse of the SVB, investors snapped up government bonds, betting that the US Federal Reserve would slow the pace of interest rate hikes to shore up financial stability.
As bond prices rallied, many hedge funds were flat-footed in the rally, but industry participants say Rokos was one of the biggest short-term losers. The fund, which has about $15.5 billion under management, was down 12.5 percent this month, the Financial Times reported March 17, as several counterparties called for more assets to be raised to meet margin calls, two said people familiar with the matter.
However, counterparties contacted by the FT said they were not concerned about Rokos’ ability to meet the margin calls.
Unlike many other macro hedge funds, which tend to be more diversified, the vast majority of Rokos’ leverage is in the government bond markets.
Billionaire Chris Rokos, who co-founded hedge fund Brevan Howard before starting his own business, made headlines in late 2021 when he was caught off guard by a massive sell-off in short-term sovereign debt. He then reduced the market risk he took on, making more than 50 percent over the past year before this month’s losses.
Rokos, the UK’s Financial Conduct Authority, the Bank of England and the SEC all declined to comment.
