Todd Edgar, like most macro hedge-fund managers, couldn’t make money this year.
Then came September. Edgar, whose Atreaus Capital LP specializes in currencies and commodities, had been betting since June that the price of soybeans would drop because of favorable weather conditions that promised a bumper crop. On Sept. 11, the U.S. Department of Agriculture reported record harvests and expanding global inventories. Bean prices tumbled 8 percent through the end of the month. That and a larger trade on a stronger U.S. dollar turned a poor year into a good one, according to an investor.
Edgar, whose $650 million firm was backed with $150 million from Goldman Sachs Group Inc.’s asset management arm in 2012, rallied 8.6 percent for the month and 9 percent for the year. He wasn’t alone. Rising volatility, concern over the global economy and Bill Gross’s abrupt exit from Pacific Investment Management Co. rattled the stock, bond, currency and commodity markets in which macro firms invest. The biggest funds, such as Paul Tudor Jones’s Tudor Investment Corp. and Andrew Law’s Caxton Associates LLC, rose between 3 percent and 4 percent in the month, thanks in large part to the jump in the dollar.
Jones’s Prescription
“We are pleased to see opportunities ripening for global macro strategies, with volatility increasing and divergent global central bank policies leading to a dispersion in expectations for interest rates and currencies around the world,” Anthony Lawler, a London-based money manager for GAM Holding AG, wrote in an Oct. 2 report.
Macro investing has fallen out of favor in recent years as low interest rates globally and a lack of big price swings in markets made it difficult for managers to make money. Clients pulled about $16 billion from these funds between the end of 2012 and June of this year, according to Chicago-based Hedge Fund Research Inc. The strategy eked out a 1 percent gain this year through August, compared with 2.5 percent for hedge funds on average, according to data compiled by Bloomberg.
Paul Tudor Jones, founder of the $13 billion Tudor Investment Corp. described macroeconomic investing as “boring.” at a conference in May. “What we desperately need is a macro doctor to prescribe central bank Viagra because otherwise it’s going to continue to be somewhat dull,” said Jones, likening an increase in interest rates to Pfizer Inc.’s blue pill for erectile dysfunction.
Last month, macro investors like Jones finally saw more of the big price swings they rely on.
Expected Volatility
The VIX, a measurement of expected volatility, has doubled to 24.64 since Sept. 18. The dollar rose last month against every G10 currency after the European Central Bank reduced all three of its main interest rates by 10 basis points on Sept. 4. The euro dropped almost 4 percent against the dollar and the yen sank 5 percent in September.