Balyasny bets against healthcare reform

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Hedge fund firm hires Barclays Capital prop trading team to focus on sector

By Alistair Barr, MarketWatch

SAN FRANCISCO (MarketWatch) -- Balyasny Asset Management, a $2 billion hedge fund firm run by Dmitry Balyasny, is betting President Barack Obama's drive to reform healthcare will founder and has hired a team of traders from Barclays Capital to focus on the sector.

The proprietary trading team at Barclays Capital, headed by Matt Jenkin, joined Balyasny recently to manage a healthcare portfolio for the firm, Balyasny wrote in a letter to investors. MarketWatch obtained a copy of the letter.

"Healthcare reform appears to be severely wounded," Balyasny said in the letter. "This is a significant positive for the sector and if legislation dies this fall, we expect a number of companies to be positively re-rated."

"We are running slightly net long as we grow our healthcare exposure and anticipate a lot of opportunity here in the fall," he added.

Jenkins and his team of three analysts have performed "well" trading in the healthcare space for several years, Balyasny noted.

In the wake of the financial crisis, President Obama has made healthcare reform a top priority and lawmakers have been working on sweeping legislation that includes a public insurance option, requires employers to provide workers with health insurance and aims to cover most Americans.

The iShares Dow Jones U.S. Healthcare Providers Index Fund, an exchange-traded fund that tracks health insurers including Aetna Inc. slumped 47% from late August 2008 to early March as investors worried that reforms could dent profitability in the sector.

The sector has rebounded strongly since then, along with the rest of the market, and got a boost recently amid signs reform efforts may be losing momentum. See story on healthcare stocks rallying.

Balyasny's Atlas Global Fund has generated annualized returns of more than 20% since it started in early 2002. During the same period, the Standard & Poor's 500 Index fell and the average hedge fund was up roughly 6%.

Last year, when the average hedge fund lost almost 20%, Balyasny avoided the carnage as its Atlas Global fund eked out a small gain.

In the first half of 2009, the fund was up roughly 3%, outperforming the S&P 500 but lagging the average hedge fund, which returned more than 9% according to Hedge Fund Research. See story on the first-half performance of hedge fund industry.
Cautious

Balyasny has been cautious this year, even as the stock market rallied strongly from early March.

"The market has the wind to its back for the next few months, but then things will probably become more difficult again," he wrote in his second-quarter letter to investors. "We are focused on trading within our net exposure limits while concentrating on picking the individual winners and losers."

In addition to the firm's healthcare trades, Balyasny is focusing on what he called a "Global gorillas theme."

"In almost every sector there are a few companies who have done a much better job than their competitors managing through last year," he wrote. "We are concentrating on buying dips in these names whenever the risk reward and catalysts are lined up."