MACRO HEDGE FUND MANAGERS KNOW THE MARKETS can be a
cruel mistress. Just ask Louis Bacon. This past summer Bacon, a
top macro investor and founder of New York–based hedge
fund firm Moore Capital Management, announced that he was
returning $2 billion — 25 percent of Moore’s
capital — to clients. He also said he was moving money out
of macro, a strategy that seeks to exploit big-picture economic
trends and global capital market events, because he wasn’t
“comfortable” taking much risk in the current
environment. Nowadays, central banks and policymakers drive the
markets and fundamentals play a diminished role.
Bacon has called his 2012 results disappointing. As of
mid-November his flagship, $4.6 billion Moore Global
Investment Fund, had returned just 3.72 percent on the year.
But that’s a relatively strong performance. Global
diversified macro funds gained an average of 1.62 percent
during the same period, according to HSBC Holdings’
alternative-investment group, compared with 14.28 percent for
the Standard & Poor’s 500 Index. And it’s not
just macro hedge funds that are struggling: Year-to-date
through October 31, the HFRI Fund Weighted Composite Index had
gained only 4.33 percent.
A new crop of hedge fund managers believe they can make
money in today’s challenging conditions, even if they
don’t agree on how to do it. Take Infineon Capital
Management, a New York shop being launched by Imran Hussain and
Mead Welles. The pair combine macro and relative-value
strategies, investing across asset classes and markets with a
focus on emerging economies, where they see more growth
potential than in debt-burdened developed markets.
“The characteristics of the crisis in the developed
world are very much emerging-market-like in nature and not well
understood by G-7 [market] participants,” says CIO
Hussain, previously head of emerging-markets debt portfolios at
$3.5 trillion, New York–based investment firm
BlackRock. “Their investment frameworks did not anticipate
the potential for zero-interest-rate policies and asset price
targeting mechanisms by central banks,” he adds. “We
are witnessing economic distortions on an epic scale, and this
tale is far from over.”
Hussain and Welles met when they were traders at Cargill
Financial Services International, the emerging-markets
investing arm of U.S. commodities giant Cargill. Before
launching Infineon, Welles spent more than a decade running
Octagon Asset Management, a New York hedge fund firm
focused on asset-backed lending.
Suvretta Capital Management, a $50 million hedge fund
firm founded by Aaron Cowen, a former manager at SAC Capital
Advisors and Soros Fund Management, identifies the same market
trends as Infineon and Moore. Like them, New York–based
Suvretta blends macro and fundamental analysis, but it focuses
on long-short U.S. equity. Cowen contends that returns can
still be found in the U.S. and other developed markets by
taking long positions in large-cap, liquid stocks with strong
growth stories and shorting industries that are contracting. In
contrast to many traditional long-short equity hedge funds,
Suvretta chooses a sector, then picks stocks.
Patrick Wolff, founder and CEO of $90 million, San
Francisco–based long-short equity hedge fund firm
Grandmaster Capital Management, also sees plenty of opportunity
in U.S. equities. Wolff doubts that emerging markets will
perform well over the next few years and is especially bearish
on China. “Hedge fund managers have to be able to spot
where the bull and bear markets are,” he says, asserting
that the action is now in the former. In the decade before
2008, emerging markets, global credit and commodities
experienced bull markets while U.S. equities slumped. Now, as
credit contracts and U.S. stocks surge, that scenario is almost
totally reversed, Wolff says. But many hedge fund managers
invest like it’s still 2007.
It remains to be seen whether these new hedge fund firms
will navigate choppy markets better than titans like Moore. But
Grandmaster’s main fund was up more than 24 percent on the
year through October 31, according to an investor letter, while
Suvretta had gained 15 percent.