Last time we looked at global macro hedge funds, what they are and why they are so enormously powerful.
What does it take to get a hedge fund job as a global macro hedge fund manager? Since the world it their oyster, a macro fund manager needs to know a lot about many different regions of the globe. They are often focused on practical economics, factors that drive inflation, exchange rates, trade deficits and more. Global macro managers tend to have a highly quantitative approach to the market and raw data. They may travel more than the average hedge fund manager, but not always. They must still enjoy sitting at a trading desk and making big bets on world markets.
By looking at opportunities around the world, macro managers can often produce returns over domestic stock indexes, and with a very different risk profile as well. A macro manager invests around the world wherever he feels the markets, currencies or commodities are likely to do well. And he shorts those regions that have a less optimistic outlook.
Of course the world is a big place, so some macro managers specialize either in their domestic market (U.S.), the most developed countries in the international market (tracked by Morgan Stanley’s EAFE index, for example), or specific regions of the world such as the BRIC developing nations (Brazil, Russia, India, China). Some focus on the Eurozone made up of EU countries.
There are many different approaches to capitalizing on macro trends. But all macro hedge fund managers have a few things in common. First, they are willing to invest across multiple sectors, using multiple financial instruments. They move easily from trend to trend or strategy to strategy, depending on wherever they spot opportunities that result from economic policies, interest rate moves or political changes.
Some macro managers use leverage, which can generate huge returns but with very high volatility. While others prefer to aim for consistent returns, without leverage, and may use derivatives for hedging their risks.
How do global macro managers identify trends that are worthy of placing multi-billion dollar bets? That’s a subject for numerous books, including George Soros’ fascinating tome, The Alchemy of Finance. In it, he discusses the government fiscal and monetary policies that history has shown to move markets.
Jaeger, Robert A., All About Hedge Funds: The Easy Way to Get Started. McGraw-Hill.
Logue, Ann C., Hedge Funds for Dummies. Wiley Publishing Inc.
Friedland, Dion. Global Macro Investing. Magnum Funds. www.magnum.com