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Global macro hedge funds see opportunity amid inflation, rising interest rates, market volatility


So far, 2022 has been a breakout year for discretionary and systematic macro strategies for the State of Wisconsin Investment Board, Madison, which manages more than $145.8 billion in assets,and SWIB has been increasing its exposure to them, said Derek Drummond, portfolio manager of funds alpha at SWIB. In 2021, most of the $6.2 billion that SWIB invested in multiasset strategies were invested in hedge funds and that part of the portfolio returned 16.3% last year, according to its annual report.

While macro strategies can act as a hedge for portfolios, Mr. Drummond said that SWIB has “never” believed hedging should be their purpose and that global macro strategies are really a way to diversify and add alpha overlay to a portfolio. Put another way: a diverse collection of macro strategies sometimes is a hedge, often delivers good returns, and can do exceptionally well in periodic markets, according to Mr. Drummond. Investors also like global macro strategies for their liquidity. “Macro is one of those areas where you can modify your position or sizing very quickly. And, generally speaking, you don’t necessarily need to be with the really big managers or the really small managers” because global macro strategies are not limited by or require certain capacities like some other investment strategies, Mr. Drummond said.

SWIB allocates mostly to midsize macro hedge funds, which have more resources than small peers, and has its own in-house macro strategies.

Jonathan Glidden, the chief investment officer of Atlanta-based Delta Air Lines’ $19.1 billion pension fund, said it has a dedicated allocation to global macro hedge funds that makes the portfolio more dynamic with both modest growth and liability hedging. “We are hopeful that the allocation to macro strategies can help mitigate maximum losses. It has worked great this year. The macro portfolio also adds an element of diversified liquidity to the portfolio, which can be helpful in managing margin calls associated with LDI derivatives and the private market denominator effect,” Mr. Glidden said in an email.

Delta is happy with its dedicated allocation to macro and doesn’t plan to make any changes. However, it is leaning more into macro strategies in its large portable alpha program, designed to outperform Treasury bills with “very low beta to equity and other traditional risk premia,” Mr. Glidden said. Delta is increasing its exposure to macro managers, especially commodities traders, he said.

“Volatility is up significantly across most asset classes. We believe macro managers can benefit from micro-opportunities presented by investors’ reactions to economic, policy and geopolitical news in today’s volatile environment,” Mr. Glidden added.

The Missouri Local Government Employees Retirement System, Jefferson City, is not expanding its 10% allocation to what it calls the alpha asset class that is invested entirely in global macro hedge funds. If anything, “we may be trimming as the asset class” because it has performed well compared to other asset classes and the 10% allocation is growing as a result, said Brian Collett, chief investment officer of the $10.7 billion plan.

Missouri LAGERS is invested in global macro hedge funds that are focused on public fixed income, public equity, and some that invest in any public market, Collett said.

Bill Li, senior investment officer at the Massachusetts Pension Reserves Investment Management, Boston, said the $92.4 billion pension fund is currently invested in global macro hedge funds and that it doesn’t plan to allocate more, at least in the near future.

Outside of the systematic commodity trading advisers, or CTAs, and trend-following managers, the macro hedge fund universe is diverse. “Investors should be clear-headed about the pros and cons of individual offerings and how they fit in overall portfolio strategy — individual manager quality is more important than the size of the allocation in this space,” Mr. Li said.

Another pension fund CIO, who asked not to be named, said their fund has invested in macro strategies for decades and that the funds have performed well, including this year. “If anything, we are taking profits since the returns have been so good. I can understand why those who didn’t have exposure to the strategy might feel like they are missing out,” the CIO said.

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