NEW YORK - Marko Dimitrijevic made a smart bet in December. The hedge fund manager, wagering the Swiss franc would fall, profited after voters there rejected a plan to have the central bank hold a fifth of its assets in gold.
For the US$830 million Everest Capital Global, his Miami-based firm's oldest and biggest fund, investments from Switzerland contributed 0.6 percentage points to gains that month. Last week, the wager had a far bigger impact. In less than a day, it wiped out the 24-year-old fund, according to a person familiar with Everest Capital, leaving the firm with about US$2.2 billion in seven other funds.
Dimitrijevic, an emerging market specialist who's navigated at least five debt crises in those markets, was undone by the central bank of the country where he was raised. Last week, the Swiss National Bank unexpectedly let the franc trade freely against the euro, ending its three-year policy of capping the franc at 1.20 a euro.
The announcement caught traders and investors globally offguard. The currency surged as much as 41 per cent versus the euro on Jan. 15, the biggest gain on record, and climbed more than 15 per cent against all of the more than 150 currencies tracked by Bloomberg.
The carnage is widespread. Brokerage firms in New Zealand and the U.K. failed and retail investors have suffered hundreds of millions of dollars of losses on leveraged foreign exchange trades. Citigroup, the world's biggest currency dealer, lost more than US$150 million, according to a person briefed on the matter.
Some mutual funds were also caught out. The US$1.9 billion John Hancock Absolute Return Currency Fund tumbled 8.7 per cent on Jan. 15, its steepest drop on record and the most among more than 2,000 U.S.-domiciled funds tracked by Bloomberg with at least US$1 billion under management.
Profits and losses for most of the hedge fund industry aren't disclosed yet as managers typically give performance figures at the end of each month and don't need to reveal the information outside of their investors.
For Everest, there was no option. The losses were so big they ended the fund.
Dimitrijevic, who is of Yugoslavian descent, has suffered big declines before and rebounded.
He started his firm in 1990 with US$8 million and Everest grew to US$2.7 billion by the start of 1998 after navigating crises in Mexico and Southeast Asia. Russia's default and currency devaluation in August of that year proved trickier and assets fell by half. One of his funds lost 53 per cent that month.
At the time, he wrote to investors that "the magnitude of the losses on the Russian debt and the speed at which they occurred were something that I have never encountered since I began working in professional money management 17 years ago," BBC News reported then.
He revived the firm and a decade later Everest was managing US$3 billion. Then came 2008, and the global financial crisis. Assets shrunk by US$1 billion as his wagers in emerging markets plummeted. By the end of 2014, Everest was again at US$3 billion.
Even after last week's miscalculation, Dimitrijevic still has a group of funds, mostly invested in emerging markets, including Argentina, Nigeria and Pakistan. These are likely to prove safer for him than Switzerland.