Macro Funds Remain Hedge Fund Investor Favorite

Macro funds are set to stay popular with hedge fund investors next year, in spite of the mixed bag of results they have seen this year.
Reports from Reuters indicated that many funds are seeing strong levels of support for the alternative investments with clients keen to stick with the strategy into next year.

Eric Siegel, head of hedge funds at Citi Private Bank in New York, told the news outlet that he wouldn’t be surprised to “see flows into macro strategies increase in 2016” having already seen an interest among his clients.

Others suggested that the level of options included in macro funds would make them likely to remain popular with investors.

The interest rate hike

One thing that is attracting the attention of investors across all assets at the moment is the impending US Federal Reserve decision on the interest rates. A meeting on whether or not to increase the rate is due to take place on 15 and 16 December, with analysts increasingly expecting to see rates rise.

This expectation that the rates will be increased is prompting investors to stick with the macro strategy as they envisage the creation of new opportunities for profit.

Michele Gesualdi, chief investment officer at Kairos Investment Partners, noted: “When there is volatility, macro funds tend to do well because they have a lot of options generally speaking. With an increase in volatility, the value of the options goes higher, regardless of the direction.”

Faith in macros

The reports of continued strong investment in macro funds next year come in spite of a weak overall performance for these hedge funds over the course of 2015.

Sharp market moves wiped out what had started to become profitable trends for many of those involved in the investment strategy and, according to data from Eurekahedge, 113 macro hedge funds actually closed over the course of 2015.

Despite this, year-to-date inflows stood at $10.71 billion, according to industry tracker eVestment.

Confidence looks set to grow next year with Agecroft Partners predicting, based on feedback from thousands of hedge fund investors, that the hedge fund industry will be over a quarter of a trillion dollars larger by summer next year compared to the same period in 2015.

They have based their estimations on ‘net of fees’ performance and net flows into the industry. If correct, their analysis suggests that the industry will return an average rate of return of six per cent, a figure which could well be substantially higher among the best funds.

Active fund management

Some funds are wielding the power of their wealth through some quite interesting tactics. While standard M&A arbitrage requires traders to essentially bet on whether a deal will be completed, a new trend dubbed ‘bumpatrage’ in a report from FTI Consulting and Activist Insight is seeing investors move into a stock and then go on to threaten to damage a deal unless the bidder ‘bumps’ up their price.

This kind of shareholder activism has the potential to be used by some portfolio managers to guide buyers into better bids which would presumably benefit their fund.

Screenshot 2016-01-01 21.50.41

Crystal Capital Partners have put together this useful introduction to global macro fund strategy: global-macro-hedge-fund-strategy (pdf download).

 

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