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Global macro hedge fund returns fail to impress

Date: Thursday, December 8, 2011
Author: Tommy Wilkes, Reuters

Some of the hedge fund industry's best-known "macro" hedge fund managers -- celebrated for shrewd bets on global economic events -- are struggling this year to generate returns befitting their star status.

In a 2011 littered with market-moving events such as the euro zone debt crisis and sweeping central bank action, veteran managers such as Louis Bacon and Paul Tudor Jones might have been expected to book record profits.

But choppy markets have made it tougher to time bets well or hold on to gains, leaving some investors less than satisfied.

"For many macro guys, the retention of profits has been poor. It's not a world in which macro funds have covered themselves in glory," Luke Ellis, head of Man Group's (EMG.L) multi-manager business, said. "Overall it's been disappointing."

Macro funds make calls on large global news events, wagering money on bond, currency, commodity and equity assets in markets liquid enough to absorb their big bets.

Several of the largest funds look unlikely to finish the year with anything close to the returns investors hoped for, although some have pared year-to-date losses with bearish plays struck just as the euro zone debt crisis deepened.

Louis Bacon's Moore Global Investments fund has fallen 2.6 percent in the year to November 18, while Fortress Investment Group's flagship macro fund was down around 10 percent by late November, one investor said.

The market segment made famous by billionaire investor George Sorosv -- who made a reported $1 billion profit from a speculative attack on the pound in the "Black Wednesday" crisis of September 1992 -- was down 3.09 percent in the 10 months to October 31, the HFRI Macro (Total) Index showed.

This compares favorably with a 6.2 percent fall in the MSCI World Index of stocks .MIWO00000PUS in the year so far, but is only marginally better than a 3.43 percent drop in the HFRI Fund Weighted Composite Index, which tracks all hedge fund strategies.

Caxton Associates, the $9 billion New York firm founded by Bruce Kovner in 1983, has eked out about 1 percent in its macro fund this year to November 30, while Paul Tudor Jones' Tudor BVI Global Fund was up 3.06 percent to November 25, the investor said.


Emerging market strategies have also suffered, with Moore Capital's emerging markets macro fund in the red, two people familiar with the fund's performance said.

Tudor, Moore and Caxton declined to comment, while Fortress did not respond to an email request for comment.

"If you look over the longer term at other episodes of deleveraging and other episodes where politics have influenced market pricing, macro managers have proved capable of generating profits for their clients," Sukie Darar, senior research analyst at fund of funds house Stenham Asset Management, said.

"But quite frankly this year the macro managers haven't always got it right," Darar said.

Part of the problem this year is how cautiously the funds are treading, some investors say.

After making money betting stock and commodity prices would fall in the August sell-off, several lost gains in October's rally and have since slashed risk, preferring downside protection over chasing further profits.

"From a risk management perspective in today's environment we understand that. But you can't run your whole portfolio that way ... We are paying them hefty fees," one fund of funds manager, speaking on the condition of anonymity, said.

One big exception to the poor performance is Brevan Howard, the $25 billion-plus London-based fund.

The firm, founded by Alan Howard, has profited from bearish bets on Europe and is up 12.7 percent this year to late November, two investor sources who have seen the numbers said.

Brevan Howard declined to comment.

In the medium term most managers remain bearish, investors say, but some are still ready to try to profit from a rally in markets after the world's major central banks took joint action to provide cheap dollar funding for starved European banks.

"Interestingly, over the last few days you are getting a sense that some managers feel the markets have been oversold and the pricing of tail risk is a bit excessive in Europe," Darar said.