* Pound lost a tenth of its value in a few minutes
* Computer-driven funds have been building short positions
By Maiya Keidan and Anirban Nag
LONDON, Oct 7 Computer-driven hedge funds were
most likely the main winners when the British pound lost a tenth
of its value to a 31-year low in a matter of minutes on Friday,
There were some losers too but many of these hedge funds
have been running significant bets against the pound since
earlier this year, ahead of the June 23 referendum on European
The $200 million computer-driven hedge fund Piquant
Technologies made between 10 and 15 basis points of profit -- or
roughly $200,000 and $300,000 -- from a short position made
before the flash crash.
"Today we are making some money on our short positions on
the pound," said James Holloway, partner and chief investment
officer at Piquant Technologies.
Piquant's artificial intelligence systems, which follow
market patterns, bet against the pound about two weeks ago and
have been building that position strongly.
The pound has been under pressure for most of this week as
anxiety grows that Britain will opt for a "hard" exit from the
But on Friday, it dived about 10 percent from levels around
$1.2600 to $1.1378 in a matter of minutes in thin early
Asian trade. That low was later revised to $1.1491 -- still the
weakest level for sterling since 1985.
"All of the trend followers (computer driven hedge funds)
will benefit," said a fund of a hedge fund investor. "Some will
have makes them a P&L of 25 basis points (bps) to 125 bps just
on their sterling exposure."
Data from the U.S. Commodity Futures Trading Commission
shows speculators which consists of these futures traders and
hedge funds, some of which follow broad macro economic trends,
had nets bets of 87,714 futures contracts against the British
pound in the week to Sept 27, up from 58,686 contracts a week
Data for the week to Friday will not be available for
another week. But Nicolas Rousselet, head of hedge funds at
Unigestion, said its survey also backed the idea that CTAs or
computer-driven funds would have made the biggest gains.
"While conducting our monthly survey across global macro
managers, we can see that they were globally bearish sterling
but had little size onto the trade. Trend following CTAs are
however clearly short sterling," said Nicholas Rousselet, head
of hedge funds at Unigestion.
The pound was last trading 1.5 percent lower at $1.2420 with
many investors of the view that May's government is leaning
towards a hard Brexit, where Britain gives up full access to the
single market in order to impose full control on its borders.
Some analysts fear that this could hinder trade and
constrict the foreign investment needed to fund Britain's
current account deficit, one of the biggest in the developed
Traders said once sterling fell below the psychological
$1.25 mark and weakened past various technical support levels on
the move lower in Asian trade, it spooked traders, including the
computer-driven algorithmic traders.
While some algo traders who bet against the pound had made
money, a few had backed sterling and lost out.
"We were long the British pound going into it but obviously
it hurt our profit and loss (account) during the day. It does
hurt our long position in sterling but only by a few basis
points," said Alastair Smith, partner at Harmonic Capital
(Editing by Anna Willard)