Global Macro Hedge Funds Set for Comeback

Stephen Harris

7 December 2005

Global macro hedge funds are set to make a comeback within the alternatives sector, according to industry sources. Although global macro assets now account for less than 10 per cent of the hedge fund universe, this proportion will increase significantly over the next three years. In the early 1990s macro funds controlled more than 70 per cent of hedge fund assets. "Money will go back to macro," Ramon Koss, head of alternative investments and mutual funds at Credit Suisse in Zurich told Reuters. "I would expect up to 30 per cent of hedge fund assets to be in some sort of directional strategy in two or three years." Global macro funds try to predict major market moves and often employ technical analysis and quantitative models. These usually include elements of mean reversion, momentum, wave theory and a variety of other indicators. Other global macro funds use fundamental analysis to identify markets which are exposed to mis-pricing. As stock, bond, currency and commodity markets become more volatile, more opportunities arise for stellar returns from global macro funds. And investors looking for the higher potential return are willing to take the concomitant risk. High net worth investors and institutions had previously considered global macro funds to be a “bit of black art" and hence tended to avoid them. Now they are reassessing these strategies because they accept the simple equation that low risk normally means low returns.