Macro hedge fund strategy
December 20, 2010 10:39 PM   Subscribe

What sort of strategies do macro hedge funds employ?

So, I understand that macro hedge funds usually trade currencies, bonds, commodities, and other asset classes; and that they generally use some sort of macroeconomic modelling to come up with their trading strategies. But what, exactly, are these strategies? How are they developed and implemented? Where would I look to even start to find out more information?

Any books, websites, articles, etc would be a great help. Technical and wonky is fine. Please note, I'm specifically looking for macro HF strategy, as opposed to more general hedge fund information. Thanks!
posted by Guernsey Halleck to Work & Money (4 answers total) 4 users marked this as a favorite
As you're clearly aware (but in the interest of providing a complete answer), the strategies are described via the name, "global macro", meaning the macro economic environment on a global scale. There is no single way to categorise all strategies as its a very, very diverse field and most of the more successful<1> strategies aren't currently and probably won't ever be publicly known.

But we do know a little; George Soros in The Alchemy of Finance outlines one of his key theories, "theory of reflexivity" (which ties into several other theories that I'm aware of and personally follow) so that's probably a good read. To gain additional insight into his thinking someone maintains a collection of links to his speeches, articles about him and articles Soros has written.

Felix Zulauf, of Zulauf Asset Management (correctly called the 1987 equity market crash) talks about his market view here (short equities) and there is an interesting interview which might give you more insight into his strategies here.

And David Gerstenhaber founder of Argonaut Capital (ex-Tiger) discusses his market view here, which should also help you get some insight into the process.

Wiley offers a book which you might find interesting, An Introduction to Global Macro Hedge Funds, you can read the first chapter here.

I left banking a couple of years ago and now (among other activities) write market commentary for banks and funds; many of my comments on Metafilter draw upon this research. Examples can be found here (the upcoming Chinese property market collapse) or here (how inflation is already in the system, just not reported adequately).

The full research packs I sell runs dozens of pages, include far more proprietary information than I give away here and is more timely (both of those comments reflected commentary that went to clients weeks earlier). I know for sure that some of this work has impacted the strategies of specific funds but I'm not at liberty to provide more details than this.

1Of course success is debatable when looking at fund performance; the well known problem of "survivorship bias" is clearly an issue that academic work I'm familiar with has looked at in earnest. Lots of this research follows Jensen (1967) work with mutual funds where he proved the majority actually generated negative alpha, after all fees were considered. The problem with hedge funds is compounded by the non-regulated nature and overall secrecy; I've recently read a paper that applied Jensen's methodology to hedge funds with even less impressive results. BusinessWeek reported both mutual and hedge fund performance for 2009 here.

Jensen, M., C., 1967, 'The Performance of Mutual Funds in The Period 1945-1964', Journal of Finance, Vol. 23, No. 2 (1967) 389-416
posted by Mutant at 12:32 AM on December 21, 2010 [6 favorites]

macro tends to be more discretional than other approaches like market-neutral -- this means that the strategy is generally buy low sell high, and operations are initiated by a trader and not a machine. Analysis is usually done using regressions,correlations and other statistics tools, especially on economic data rather than market data.
Or maybe they have a rotational model or insiders passing privileged information.
In short, I doubt there is a lot of technical and wonky material that applies to macro; it mostly applies to fixed income.
posted by 3mendo at 12:39 AM on December 21, 2010

Wow, Mutant, thanks! As it happens this question came about after a conversation I had with a guy who works for one of the Tiger Cubs, so the Gerstenhaber link is particularly relevant.
posted by Guernsey Halleck at 2:48 AM on December 21, 2010

Honestly the only correct answer to this is "anything they want to do"
posted by JPD at 5:34 AM on December 21, 2010

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