Tuesday, September 27, 2016

Hedge Funds: "Tudor's Existential Moment"

Global macro is hard.

From Bloomberg Gadfly, Sept. 26:
In general, the hedge-fund industry is starting to stabilize after more than a year of severe withdrawals. But there's one significant exception: For a handful of large macro funds, the pain continues.
These strategies -- which bet on broad economic and market trends -- reported $3.4 billion of withdrawals last month, the most of any hedge-fund type, according to a Sept. 21 report from eVestment.

Among those feeling the heat is Paul Tudor Jones's Tudor Investment Corp., one of the oldest and most expensive hedge-fund firms. After suffering more than $2 billion of investor withdrawals this year, it has cut 15 percent of its staff, including the closure of its Singapore trading desk, and lowered fees to retain clients, according to Bloomberg News reports.

On one level, this isn't surprising given the fact that Tudor's macro funds have lost value this year, despite bonds and stocks both posting substantial rallies.

Down Time
Tudor's macro hedge funds have disappointed investors, posting losses this year
As a whole, macro funds reported average gains that were significantly lower than returns on broad indexes of stocks and bonds, making it hard to justify the higher fees charged more broadly throughout the hedge-fund universe.

The Laggards
Macro hedge funds have generally underperformed stocks and bonds this year on a total return basis...
But the problems within macro hedge funds go beyond just near-term performance.

It's getting harder to read economic tea leaves and determine the future path of markets. Some of the traditional gauges of market stress are increasingly dismissed as irrelevant or less accurate in an era of central-bank interference and new banking regulations....MORE 
Here's some of our commentary from a 2009 post repeated in 2016's "Global Macro: Paul Tudor Jones Interview at Institutional Investor":
...The advantage and disadvantage of global macro is It Is Not Easy. You have to pay attention and you have to understand the interrelationships of many markets and politics and weather and psychology and be facile in both words and numbers and in an ego-driven business be humble enough to learn the lessons the market will teach you.

It really helps to not take yourself too seriously, both to avoid the temptation to impose your will upon the market and to maintain enough perspective to spot opportunities ahead of the crowd.
Because global macro isn't easy the rewards can be tremendous.
Continuation of Paul Tudor Jones interview at Institutional Investor:...