CAIA Level I: An Introduction to Core Topics in Alternative Investments, 2nd Edition

CHAPTER 13

Macro and Managed Futures Funds

This first of five chapters on hedge fund strategies begins at, literally, the macro level. This chapter explores macro funds (i.e., global macro funds) and managed futures funds. Macro and managed futures strategies can differ substantially from other hedge fund strategies. Many investment strategies, especially in the arbitrage sector, focus on inefficiencies within markets at the security level. Macro and managed futures funds focus on the big picture, placing trades predominantly in futures, forwards, and swaps markets that attempt to benefit from anticipating price level movements in major sectors or to take advantage of potential inefficiencies at sector and country levels. At the end of the third quarter of 2010, Hedge Fund Research (HFR) estimated that macro and managed futures funds managed approximately $330 billion, which is 18.6% of the hedge fund universe.

13.1 MAJOR DISTINCTIONS BETWEEN STRATEGIES

Macro and managed futures funds share many common features. They tend to have substantially greater liquidity and capacity and, when focused on exchange-traded futures markets, lower counterparty risks than hedge funds that follow other strategies. Capacity refers to the quantity of capital that a fund can deploy without substantial reduction in risk-adjusted performance. Counterparty risk is the uncertainty associated with the economic outcomes on one party to a contract due to potential failure of the other side of the contract ...