Global Macro Hedge Funds Returning to Their Roots ~ market folly

Monday, December 15, 2008

Global Macro Hedge Funds Returning to Their Roots

If someone was asked to name a fund in the global macro game, undoubtedly Tudor Investment Corp or Moore Capital Management would be some of the most frequent responses. The global macro strategy has fared well in the world of hedge funds. Paul Tudor Jones' Tudor Investment Corp has earned an annualized return of greater than 20% over the span of two decades. Louis Bacon's of Moore Capital Management shares the same accolade. And, while they are both down this year, they have fared much better relative to many of their peers and the market indexes in general. Tudor's flagship fund finds itself -5% for the year, while Moore was -2.9% year-to-date through November as we noted in our November hedge fund performance update. But, in a never-ending quest for outperformance, Tudor and Bacon want more. And, in order to accomplish that, they see it fit to return to their roots.

Taken from Moore Capital Management's latest letter to investors, Bacon wrote,

"...We had become disheartened by the complexity of our portfolio given our results and took decisive steps to change our format....
...The combination of a streamlined and liquid portfolio, high cash balances and mostly macro-oriented managers has allowed us to focus on the opportunities in a macro period that is going to continue to be of historic proportions..."

Moore's funds saw requests for redemptions to the tune of 8% of the fund's assets. Bacon seemed worried that his firm had become almost 'too diversified' and had become overstretched, trying to hit every idea. Bacon noted that he will cease private equity investments and will allocate more money to his global macro traders and equity investment team. This decision comes as a polar opposite to what we've recently seen in Moore's portfolio. Their equity holdings decreased from $4.45 billion two quarters prior to only $1.36 billion this past quarter. So, as Bacon has noted, we should see a change there in the coming months and year.

Paul Tudor Jones shares similar thoughts to his global macro colleague. Recently, Tudor halted withdrawals from its Global BVI Fund, in an effort to separate illiquid from liquid assets. Much like Moore Capital Management, Tudor was out decreasing equity exposure across the board last quarter, as we noted in our latest update of Tudor's portfolio.

In his letter to investors, Tudor talked about returning to the global macro roots he built his firm upon, writing,

"Those of you who have visited recently have heard me refer to this return to our roots as back to the future."

Overall, global macro funds have weathered the storm relatively well this year. In part, this is due to their ability to maneuver between multiple markets, wherever they see opportunity. And, unless equity indexes can ramp up and lend a hand to value oriented players, we think macro funds will continue to be poised to outperform relative to their peers and the markets in general; especially as they cease to outstretch themselves and return to their roots.

Source: Bloomberg

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