Macro hedge funds toast blowout year that peers are keen to forget

Hedge fund-traded bonds and currencies are on track for their best year since the global financial crisis, boosted by higher interest rates that have weighed heavily on equity specialists and mainstream investors.

So-called macro hedge funds, made famous by the likes of George Soros and Louis Bacon, ended a volatile period when markets were marred by trillions of dollars of central bank bond purchases after 2008. But this year they’re up thanks to seismic moves in global bond markets and bull runs on the dollar as the U.S. Federal Reserve and other central banks grapple with inflation.

Among the winners was billionaire businessman Chris Roccos, who recovered from losses last year to gain 45.5 percent in 2022, helped by bets on rising interest rates including UK market turmoil in the autumn. That leaves co-founder Brian Howard on track for his best year since launching his fund, which is now one of the world’s largest macro funds with assets of about $15.5 billion in 2015.

Caxton Associates CEO Andrew Law has gained 30.2 percent in his $4.3 billion macro fund through mid-December, which is closed to new money, according to one investor. Syed Haider’s New York-based Haider Capital gained 194 percent in its Jupiter fund, helped by bets on bonds and commodities, which at one stage rose more than 270 percent this year.

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“It reminds me of the early part of my career when macro funds were the dominant style of investing,” said Kenneth Tropin, president of the $19 billion-asset Graham Capital, which he founded in 1994. Referring to the strong cycle. In the 1980s, 1990s and early 2000s.

“They were really hedge funds that weren’t intentionally exposed to people’s holdings in stocks and bonds,” Tropin added.

Global stocks are down 20 percent this year, while bonds are posting their biggest declines in decades, making 2022 a year to forget for many asset managers. But hedge funds that can bet against bonds or treat currencies as an asset class have gone ahead. Micro funds gained an average of 8.2 percent in the first 11 months of this year, according to HFR Data Group. This puts them on track for their best year since 2007, during the onset of the global financial crisis.

Traders took advantage of bets on rising yields, such as on the two-year U.S. Treasury note, which rose 0.7 percent to 4.3 percent, and on the 10-year gilt, which rose 1 percent to 3.6 percent. done A surprise shift by the Bank of Japan in its yield curve tightening policy, which raised Japanese government bond yields, further boosted returns.

“They’ve given every macro trader a wonderful Christmas – even the office security guards are short Japanese government bonds I think,” said the micro hedge fund manager.

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Darren Wolff, head of Alternatives Global Investments in Aberdeen, said with the “artificial pressure on volatility” now removed from ultra-loose monetary policy, major traders will continue to benefit from their economic research.

Computer-driven hedge funds have also benefited, providing long-term trends with most market movements. These so-called managed funds rose 12.6 percent, their best year of returns since 2008.

London-based Aspect Capital, which manages about $10 billion in assets, gained 39.7 percent in its largest diversified fund. It leveraged markets including bonds, energy and commodities, with its biggest gains coming from bets against UK gilts. Leda Braga Systematica gained 27 percent in its Blue Trend fund.

“We’re in a new era where unexpected events happen with alarming regularity,” said Andrew Baer, ​​managing member of US investment firm Dynamic Beta. Jumping yields and fast-moving currencies presented opportunities for trend-following funds, he added.

The gains contrasted sharply with the performance of equity hedge funds, many of which ended a miserable year as high-growth but unprofitable technology stocks that had risen in a bull market fell due to rising interest rates.

Chase Coleman’s Tiger Global, one of the biggest gainers from the surge in technology stocks at the height of the coronavirus pandemic, has lost 54 percent this year. Andreas Halverson’s Viking, which exited the stock trading earlier this year at extremely high multiples, lost 3.3 percent through mid-December.

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Meanwhile, Boston-based WellRock, a tech-focused fund, lost 42.7 percent. And Sky Global, founded by former Third Point analyst Jamie Stern, lost 40.9 percent, hurt by losses in stocks like Amazon, Microsoft and Alphabet. Stern wrote in an investor letter seen by the Financial Times that he was wrong about the “magnitude of macro risks.”

According to HFR, equity funds fell 9.7 percent overall, putting them on track for their worst year of returns since the 2008 financial crisis.

“Our biggest disappointment came from managers, even those with long track records, who failed to anticipate the impact of rising prices on growth stocks,” said Cédric Vogenier, head of liquid alternative funds management at SYZ Capital and The research leader said. “They didn’t recognize the paradigm shift and buried their heads in the sand.”

With the exception of 2020, this year marked the largest gap between top and bottom hedge fund performance since the financial crisis in 2009, according to HFR.

“Over the past 10 years, people have been rewarded for investing in hedge fund strategies [market returns]”However, 2022 was the year to remind you that a hedge fund should ideally also give you diversification,” said Graham Capital Tropin.

Additional reporting by Katie Martin

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