Not All Hedge Fund Strategies Stink This Year

Date: Friday, December 19, 2008
Author: Geoffrey Rogow, Market Beat, Wall Street Journal

Although losses and redemptions are drastically shrinking the entire hedge fund world, global macro funds are garnering more interest because of their stronger returns and easy availability of liquidity.

Global macro funds — which make broad bets, such as playing one country’s currency or stock market indexes against others, often using derivatives — are one of the only strategies tracked by the Hennessee Hedge Fund Index that has posted a gain in 2008, including a rise of 1.23% for November. With cash reigning as king these days, investors are shunning funds that cannot return principal quickly, like those that specialize in fixed-income investments or merger arbitrage situations.

“If you look at the performance of hedge funds, global macro guys have shown the best performance. Certainly, wealthy people have taken notice,” said Quincy Krosby, chief investment strategist for Hartford Financial Services Group Inc.

Among the leaders, a $15 billion global macro fund run by Brevan Howard Asset Management gained 3.7% in November, and is up 21.2% for the year, according to investors. Other global macro shops that have done well include the Comac Global Macro Fund, which is up by more than 29% this year. And Bruce Kovner’s $6 billion Caxton Global Investment LTD Fund was up 11.5% year-to-date through Dec. 2, according to investors.

It’s not just high-net-worth clients, who can change direction of their money quickly, who are looking more at global macro. Larger investors, like pension funds and hedge funds of funds, have put global macro at the fore of their 2009 plans. Overall, macro strategies accounted for $300 billion, or 19%, of total industry assets of $1.564 trillion on Oct. 31, according to Hedge Fund Research Inc., up from 15% at the end of 2007 Through Oct. 31, that area of hedge funds rose 4.4% this year, according to HFR.

“They trade in liquid markets, like futures, with an event horizon of two hours and two weeks. This enables them to take advantage of this short-term choppiness the market has presented better than most,” said Joseph Gieger, a managing director with hedge fund of funds GAM, a unit of Julius Baer Holding AG, with total assets under management of $66.8 billion as of June 30.

One of a long list of investors looking to explore global macro strategies further is the $153.9 billion New York State Common Retirement Fund, which has steadfast guidelines provided by New York state laws to restrict risk. The fund had roughly $5 billion committed to a variety of hedge funds and funds of funds as of March 31.

Jim Fuchs, a spokesman for the New York State Common Retirement Fund, said the hedge-fund allocation is currently shifting from one that invests mostly in hedge funds of funds to a strategy that invests in hedge funds directly. And, in the move to specific hedge funds, tactical trading, global macro funds and Commodities Trading Advisers, or CTAs, could see a significant increase.

As of Oct. 31, Hedge Fund Research data showed that macro and “short-bias” funds were the only two hedge fund groups in the green this year, with short-bias posting a 31% jump year-to-date and a 5.4% gain in November.