Hedge Fund Reader : Return of the Macro Hedge Funds

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December 14, 2005

Return of the Macro Hedge Funds

According to hedge funds industry experts, these funds, which bet on market trends using economic analysis, are expected to be popular among investors and likely to dominate the industry within the next three years. More and more investors are getting attracted towards higher potential return offered by this risky strategy, which is also known as global macro.

The potential of the fund is highlighted as stock, bond, currency and commodity markets are likely to be more volatile due to economic uncertainties. In the recent times, the most high-end macro fund was one run by George Soros, who in 1992 bet against sterling staying within Europe's Exchange Rate Mechanism.

A study of the market reveals that global macro funds account for less than 10 percent of the total assets under the industry’s umbrella. This is comparatively less than equity hedge funds, which are estimated at 40 percent. Equity hedge funds are popular with institutional investors. However, in the early 1990s macro funds used to control more than 70 percent of the total assets of the hedge funds industry.

According to industry experts, eventually money shall flow back to macro funds. Analysts are projecting that up to 30 percent of the total hedge fund assets are likely to be in parked in directional strategy within two or three years time. Current estimate of the market outline that hedge funds manage more than $1 trillion in assets. This is double of the asset figure in 2000. Further, if projections are to be believed, then, within 5 years the assets should be to the tune of $2 trillion.

The main pull away from macro funds in recent times has been due to the emergence of institutional investors such as pension funds, which have generally avoided macro funds due to the high risk nature.

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December 14, 2005 in Emerging Markets | Permalink