“Macro” hedge funds are back in favour with investors seeking to take a view on US President Donald Trump’s economic policies, European elections, or interest rates, but it is start-up funds rather than established players which are attracting cash.
Some of the main beneficiaries of the macro revival are managers who cut their teeth at the big macro firms such as Moore Capital Management, Brevan Howard and Tudor Investment Corp, which made their names for outperformance in 2007-2009.
Eric Siegel, head of hedge funds at Citi Private Bank, said in general that macro strategies are likely to thrive.”With volatility coming back and monetary supply tightening, we believe it could be a great environment for macro managers,” Siegel said.
Macro funds bet on macroecnomic trends using currencies, bonds, rates and stock futures.
They outperformed the broader industry during the financial crisis and amassed tens of billions of dollars between 2010 and 2012.
But they lost most of those assets between 2013 and 2014 and also in 2016 for a variety of reasons, including performance.
But macro is back in vogue and was the most popular hedge fund strategy among investors in the fourth quarter of 2016 and the first two months of this year, according to industry data providers Preqin and eVestment.
Moore Capital’s Louis Moore Bacon, Alan Howard, who co-founded Brevan Howard, and Paul Tudor Jones of Tudor Investment were among the macro stars after years of delivering double-digit returns.
But during the lean years, when macro was less in favour, they had to cut fees and in some cases staff.
Now newcomers, such as Moore Capital spin-out Stone Milliner, are pulling in cash and producing some strong returns.
Stone Milliner’s discretionary global macro closed to new money last year after taking in over $4bn in the previous two years. Moore Capital’s assets have fallen slightly from $15bn in 2012 to $13.3bn as of December 31 2016, filings with the US Securities and Exchange Commission (SEC) showed.
Anglo-Swiss firm Stone Milliner, set up in 2012 by former Moore Capital portfolio managers Jens-Peter Stein and Kornelius Klobucar, averaged returns of 8.3% between 2014 and 2016, a source told Reuters, while Moore Capital Management averaged 3.4%, a second source said.
London-based Gemsstock, set up in January 2014 by Moore Capital trader Darren Read and his co-founder Al Breach, made 12.8% on average over the same period, documents seen by Reuters showed.
Chris Rokos, a Brevan Howard alumnus, raised another $2bn in February after returns of 20% in 2016.
EDL Capital made gains of 18.4% last year after ex-Moore Capital trader Edouard De Langlade launched the firm in September 2015, according to a source close to EDL Capital.
It has amassed assets of $450mn to date, he said.
Ben Melkman, who also formerly worked at Brevan Howard until May 2016, raised over $400mn for his launch in March, SEC filings showed.
Brevan Howard’s firm-wide assets fell to $14.6bn in 2017, from $37bn in 2012. But the old guard are fighting back. Some have been cutting fees and offering alternatives.
Howard, Brevan Howard’s co-founder, last month launched a new fund managed solely by him, which sources said has already amassed more than $3bn.
Tudor Investment lowered its management fees to 1.75% and performance fees to 20% in February after a reduction last year and Moore Capital cut the management fee on its Moore Macro Managers fund to 2.5% from 3%.
Tudor Jones laid off 15% of staff in August.
The firm’s main Tudor BVI Global Fund started 2017 down 0.6% to March 3 after gaining 0.9% in 2016.
Brevan cut its management fees to zero for some current investors in its Master Fund and its Multi-Strategy fund last September after a similar move from Caxton Associates.
But for both the old and new macro funds, it is still to be determined what 2017 will hold.
Even though macro funds are flat on average for the first two months of 2017, making gains of just 0.38%, according to Hedge Fund Research, the popularity of macro strategies is not in doubt.
A Credit Suisse survey in March of more than 320 institutional investors with $1.3tn in hedge funds showed macro was set to be the favourite strategy of 2017. Preqin data showed that after pulling assets out of macro for three back-to-back quarters, investors added $6.4bn to the strategy in the fourth quarter of 2016 after Trump’s win.
Data showed that macro funds have pulled in $4.4bn in the first two months of 2017, demonstrating a turnaround from 2016 when investors took $9.8bn out of macro after withdrawing $10bn in 2013 and $19.1bn in 2014. “I don’t think macro is dead.
Managers who can be nimble and are able to look outside the large liquid asset classes can still find great opportunities,” Erin Browne, head of Global Macro Investments at UBS O’Connor, said. Representatives at Tudor did not immediately respond to a request to comment.
Moore Capital had no comment.
Moore Capital Management offices in London. Some of the main beneficiaries of the macro revival are firms such as Moore Capital Management, Brevan Howard and Tudor Investment Corp, which made their names for outperformance in 2007-2009.
