Rocky market giving macro funds a boost

Hedge funds that bet on bonds, currencies, stocks and commodities are among the industry’s biggest winners this year easily outpacing growth and tech funds’ returns and preparing to see significant inflows of capital as the stock market hovers near bear market territory. So-called global macro funds returned 10.3% in the first four months of the year. The Standard & Poor’s 500 index tumbled 13% in that period.

Global macro funds on average delivered positive returns, over three years. But they also trailed behind the hedge fund industry’s stronger returns. Now with inflation surging and volatility ticking higher as central banks reverse years of monetary stimulus. Eamon McCooey, head of prime services at Wells Fargo said that this environment will most likely lead to new inflows of capital to the strategy at the expense of other funds. Global macro funds invest only about 17% of the industry’s $4 trillion in assets and the 28% invested by funds that bet on corporate events.

The latest available data, flows were picking up as investors sent $3 billion in new capital into these strategies. Overall, $19.8 billion was added in the first quarter. Scott Bessent, who runs Key Square Group after having cemented his reputation as a top global macro investor by helping billionaire George Soros engineer his famous bet against the British pound 30 years ago. Bessent said in his letter that they are now seeing a series of longstanding economic, political, monetary and portfolio management systems breakdown.

This is opening the way for a large pipeline of vast opportunities. They also added that events with a small probability of occurring are becoming more numerous as central banks are reversing ultra-loose monetary policies. Individual funds’ returns are making the case, with the blue-chip Brevan Howard Master Fund up 12.04% this year. Bridgewater’s Pure Alpha posted a return of 26.37% in the first four months. The firm is considering returning capital to investors in the near term.

AQR’s Global Macro Strategy is up 21%. Graham Capital Management’s Quant Macro rose 21.7%, helped by commodities and foreign exchange. Darren Wolf, global head of investments, alternative investment strategies at global investment company abrdn said that they are finally in an environment that they expect to stay really conducive for the macro strategy. To position themselves to take advantage of the shift in tastes and capital, some firms are adding strategies. Cinctive Capital Management hired former Brevan Howard trader Giles Coppel this year to build out a team.

Investors believe macro managers are likely to keep the momentum going. Christian Lee, head of international alternative investments Itau USA Asset Management, which oversees $11 billion in a fund of funds said that one example is the commodity trade. It’s become quite popular and it’s worked very well. Commodities can be some of the most volatile assets out there so one might want to be a bit cautious.