Stan Druckenmiller probably does not need an introduction. He is one of the best hedge fund manager ever, with an incredible track record. He was the brains behind the huge British Pound short position, which, around the turn of the century, basically broke the back of The Bank Of England.
The annualized rate of return for his firm Duquesne Capital Management was 30%, in which his investors did not have to endure a single down year.
His investment approach can be generally described as being willing to take a big swing when he is certain that a great opportunity is in front of him. A concentrated portfolio is generally the only way to create the kinds of returns Druckenmiller generated. The fact that he invested that way and didn’t have any down years is hard to fathom.
He shut Duquesne Capital in 2010 having tired of the responsibility of managing money for other people. Today, he manages nearly a billion dollars of his family’s money through the Duquesne Family Office LLC. As he must file reports with the SEC, it allows to track what he is doing.
Source of image: Bloomberg
This article is based on the insights from Hedge Fund Insiders (see their Seeking Alpha article here).
A Huge Gold Position By A Brilliant Investor
At December 31, 2015, the Duquesne Family Office managed by Druckenmiller reported $977 million of assets. $292 million or 29.88% of that was invested in the SPDR Gold Trust.
Based on our review of the quarterly filings, that entire position was established between April 1, 2015 and June 30, 2015. During the time that Druckenmiller was establishing the position, the price of gold hovered around $1,200 per ounce.
This begets the question “why is Mr. Druckenmiller holding such a huge position in gold?” The answer is to be found in a speech which he gave in Q2 2015 where he said the following:
“Our monetary policy is so much more reckless and so much more aggressively pushing the people in this room and everybody else out the risk curve that we’re doubling down on the same policy that really put us there (in the 2008 financial crisis) and enabled those bad actors to do what they do. Now, no matter what you want to say about them, if we had had five or six percent interest rates, it (the housing bubble) would have never happened because they couldn’t have gotten the money to do it.
This is crazy stuff we’re doing. So, I would say you have to be on alert to that ending badly. Is it for sure going to end badly? Not necessarily. I don’t quite know how we get out of this, but it’s possible.”
Druckenmiller seems to believe that Central Bankers around the world may not be fully in control of what ZIRP (zero interest rate policy) and now NIRP (negative interest rate policy) ultimately turn into.
In November 2015, Druckenmiller appeared at the annual Dealbook Conference and again repeated his concerns about Central Bank policy. While he notes that the U.S. Federal Reserve did a great job of keeping the economy afloat back in 2008 and 2009, he can’t understand why emergency financial measures are still in effect seven years after the fact.
Druckenmiller believes that years of easy money policy have caused all kinds of unusual behavior. He points to corporations borrowing vast amounts of money at ultra-low rates to buy back stock despite share prices being at all-time highs. He points to every investor in the world be pushed way out on the risk curve trying to achieve some yield.
Given his track record, him putting that much into gold is likely something we should all be paying attention to. Hedge Fund Insiders is paying attention to what the few really great investors like Stan Druckenmiller are doing.