Hedge-Fund steps out of the Game due to HFT

Brokerdealer.com post courtesy of WSJ.com


A hedge-fund manager says an unusual culprit contributed to his firm’s demise: high-frequency traders.

Rinehart Capital Partners LLC, which had been backed by hedge-fund veteran Lee Ainslie and specialized in emerging-markets stock-picking, is closing, according to a letter viewed by The Wall Street Journal.

In the letter, Rinehart founder Andrew Cunagin aligned himself with those who have been critical of the rise of fast-moving traders.

“This is a circus market rigged by HFT and other algorithmic traders who prey on the rational behavior of warm-blooded investors,” Mr. Cunagin wrote, referring to the high-speed traders who have attracted wide attention this year for the alleged advantages they hold over more traditional investors.

Mr. Cunagin, 43, said in an interview from Cape Town, South Africa, where he was scouting potential future investments, that there was “clear evidence of penetration” by high-frequency traders in the stock markets of South Korea and Mexico, among other areas.

“You can see the evidence of dark pool trading…you’ll see half the day’s trading volume occur in the last seconds of trading,” he said. “There’s just evidence that this is not a level playing field.”

Rinehart, based in Nashville, Tenn., had less than $100 million under management this summer. It joins other stock-picking hedge funds that have thrown in the towel in recent months, such as Emrys Partners LP, managed by financial-crisis star Steve Eisman, and an effort from private-equity giant KKR KKR +0.09% KKR & Co. L.P. 

Many hedge-fund managers, particularly those that bet on global economic trends, have criticized stock prices they believe to be out of whack and a lack of trading volatility, which they say doesn’t suit their style. Stock prices have risen for five consecutive years, helped by low interest rates and central-bank stimulus programs.

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