CNBC. com had an interesting article about hedge funds. Hedge funds, in general, are under pressure, having had net withdrawals over the past few years. According to the article, hedge fund strategies have traditionally been broken into four categories: Equity Hedge, Relative Value, Global Macro, and Event Driven. Equity Hedge (long/short) is the original A.W. Jones strategy, but right now most of the net flows are going to Global Macro.
| H2 2007 | 2008 | 2009 | 2010 | H1 2011 | Total | |
| Equity Hedge | $11.06 | ($38.07) | ($16.11) | $0.46 | $2.27 | ($40.40) |
| Event Driven | $3.95 | ($6.30) | ($6.58) | $2.20 | $2.25 | ($4.47) |
| Macro | $5.08 | $4.23 | $0.97 | $2.09 | $7.65 | $20.01 |
| Relative Value | $2.49 | $1.93 | ($10.99) | $3.79 | $3.04 | $1.25 |
| Grand Total | $23.57 | ($38.21) | ($32.71) | $8.54 | $15.21 | ($23.60) |
Source: Morningstar
The reason for the recent primacy of Global Macro is interesting. According to the article:
Global Macro has replaced Equity Hedge as the darling of the industry. Since 2007, Global Macro funds have attracted more than $20 billion, while Equity Hedge funds lost more than $40 billion in outflows. Macro is the only strategy that has received inflows of capital every year since 2007, according to industry researcher Morningstar.
Global Macro managers enjoy the widest playing field of investments. They choose from all asset classes, including commodities, currencies, bonds, and equity markets. Fund managers say the appeal lies in the liquidity of these markets—allowing managers to move in and out of positions quickly.
“While there is a distinct lack of trust and confidence in the developed market’s financial and political system, the macro environment continues to offer considerable trading opportunities. It is the most nimble strategy,” says Alastair Crabbe, vice president and head of communications at Permal Investment Management.
From my point of view, another contributing factor is increasing globalization and the realization by many US investors that global investment opportunities exist in multiple asset classes. Americans are suddenly paying attention to European politics. Five years ago most people in the investment industry could not have told you the name of the head of the European Central Bank. Now our market swings up and down depending on the prospect of Germany cutting off Greece’s allowance.
Under the current regulatory structure, clients who are not accredited investors cannot invest in hedge funds. Even investors who qualify are sometimes put off by the high minimums, the lack of transparency, leverage, and the high profit-sharing allocation. Our Global Macro strategy, whether in separate account form or mutual fund form, is a reasonable substitute.
