The Return of Global Macro - why investors should be wary of irrational expectations

Abstract

With the collapse of LTCM in 1998, global macro investing / trading suffered a severe blow in terms of acceptance in the markets. Because of many highly leveraged hedge funds, investors and counterparts lost serious money, markets were at the brink of destabilisation and the regulators had to come to help. Hedge funds which use so-called global macro strategies were suddenly out of fashion. In 2000, Soros and Robertson left the global macro business and restructured their activities. It seemed that global macro would disappear as a major strategy, traded only by a small number of fund managers, and other strategies such as long / short equity would dominate alternative investment strategies. However, in 2002 many investors noticed th epositive performance of gloabl macro (+14% in the CSFB Tremont Subindex) and felt that they should consider investments into it. Hence many firms will launch new fund sto satisfy this new demand. However, some established funds have recently returned capital to their investors due to the lack of opportunities or the smaller return potential. In this paper we analyse global macro investing and discuss th epotential rewards and risks for investors.