Hedge Fund Investing: A Practical Approach to Understanding Investor Motivation, Manager Profits, and Fund Performance

Flows and Performance

The global macro sector has seen steady growth in assets under management since the beginning of the millennium. High-net-worth investors are attracted to the high returns generated from this strategy, despite its relatively high volatility and risk. Institutional investors are attracted to the strategy by its low to negative correlation with traditional portfolios and its liquidity. The combination of demand from a wide range of investors has propelled the strategy to one of the major allocation categories. According to data compiled by HFR, the strategy started with less than $100 billion under management in 2000 and has increased capital every year except 2008. At the end of 2011, the strategy had almost $500 billion in capital under management. In addition, the relative uncertainty associated with markets beginning in 2008 and the lack of directionality or conviction in the markets’ direction has led many investors to allocate capital to global macro based on the belief that they can act quickly to put risk on or take risk off, based on changing macroeconomic data.

Investors have generally been rewarded with positive quarterly performance over changes in the business cycle. The strategy lost money in the third quarter of 2008 but rebounded in the fourth quarter and into 2009 and over time has had significantly more positive than negative quarters. Figure 4.1 shows the strategy's quarterly performance from 1998 to 2011.

Figure 4.1 HFRI Macro Index Quarterly ...