Rock markets give a boost to macro funds

Traders work on the trading floor of the New York Stock Exchange (NYSE) in Manhattan, New York City, US, May 20, 2022. REUTERS/Andrew Kelly

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NEW YORK, May 24 (Reuters) – Hedge funds betting on bonds, currencies, stocks and commodities are among the biggest gainers in the industry this year as growth returns easily outpaced technology funds and are poised to see massive capital inflows as the stock market hovers. Near the bear market area.

So-called global macro funds returned 10.3% in the first four months of the year while the average hedge fund rose 1.9%, according to data from Hedge Fund Research. The Standard & Poor’s 500 (.SPX) index tumbled 13% in that period.

Over the past three years, global macroeconomic funds have on average generated positive returns, but they have also lagged behind the hedge fund industry’s stronger returns.

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Now with inflation rising and price swings upward as central banks reverse years of monetary stimulus, the environment looks especially good for global macroeconomic funds.

“This environment will likely lead to new inflows of capital into the strategy at the expense of other funds,” said Eamonn McCoy, Wells Fargo’s head of principal services.

Global macro funds invest only about 17% of the industry’s $4 trillion in assets, less than about 30% invested by hedge funds focused on stocks and 28% invested by funds that bet on corporate events, according to hedge fund research data.

During the first quarter, the most recent data available, flows were rebounding as investors sent $3 billion in new capital to these strategies, compared with $1.9 billion that went to equity-oriented funds. A total of $19.8 billion was added in the first quarter, according to HFR data.

Scott Besant, who runs Key Square Group after cementing his reputation as a major global investor by helping billionaire George Soros design his famous bet against the British pound 30 years ago, told investors he’s more passionate about the environment now than he was in early January.

“We are now witnessing a series of protracted breakdowns in the economic, political, monetary and portfolio management systems,” Besant said in his letter. “What we see in the remainder of the 2000s is a succession of system breakdowns.”

This opens the way for a “large pipeline of massive opportunities,” Besent said, adding that events with a low probability of occurring are “increasing in number” as central banks reverse their ultra-loose monetary policies.

The company declined to comment further on the letter.

Single fund returns prove the case, with premium tranche Brevan Howard Master Fund up 12.04% this year through April, while Trium Larissa Global Macro small fund is up 30.9% in the first four months of 2022.

Bridgewater’s Pure Alpha posted a return of 26.37% in the first four months. The company told investors it was approaching production capacity limits, according to excerpts from a letter seen by Reuters. A source familiar with the situation said that the company is considering returning the capital to investors in the near term.

AQR’s global macro strategy is up 21% and tells investors that its strategy has benefited from rising inflation as well as from the end of fiscal stimulus.

Quantum Macro in Graham Capital Management was up 21.7%, boosted by commodities and foreign currencies.

“We are finally in an environment that we expect to remain truly conducive to macro strategy,” said Darren Wolf, global head of investment and alternative investment strategies at global investment firm abrdn, which is headquartered in Edinburgh.

To position themselves to take advantage of the shift in tastes and capital, some companies are adding strategies. Cinctive Capital Management hired former trader Brevan Howard Giles Coppel this year to build a team as clients demanded it. Earlier in the year, Schönefeld Strategic Advisors committed $5 billion to this strategy.

Investors believe that the macro managers are likely to maintain the momentum, given that the markets are expected to bounce up and down with volatility. But there can be some pitfalls.

“You can have a problem when so many managers are crowded into similar deals,” said Christian Lee, head of international alternative investments Itau USA Asset Management, which oversees $11 billion in a fund of funds.

“One example of this is commodity trading. It has become very popular and has worked very well. Commodities can be one of the most volatile assets, so one might want to be a little cautious.”

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Additional reporting by Sophia Herbst Baylis and Carolina Mandel; Editing by Megan Davis and Nick Ziminsky

Our Standards: Thomson Reuters Trust Principles.

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