Global Macro: Masters of the Universe?

Evaluating the He-Mans of the Investment Industry

July 2020. Reading Time: 10 Minutes. Author: Nicolas Rabener.

SUMMARY

  • The alpha of global macro funds has been shrinking consistently over time
  • However, correlations to equities & bonds were low on average, offering diversification benefits
  • Capital allocators have been cautious on the strategy in recent years

INTRODUCTION

He-Man and the Masters of the Universe was a popular TV cartoon show in the 1980s, where a handsome Prince Adam was battling the evil Skeletor for control of the universe. Each time Prince Adam held the Sword of Power and boomed “By the power of Grayskull”, he transformed into He-Man and became the most powerful man in the universe.

Although none of them is as good-looking as Prince Adam, the investment industry also has its masters of the universe, namely global macro investors like George Soros, Stanley Druckenmiller, or Ray Dalio. Their power is the ability to invest in any asset class under the sun and take profitable long or short positions. It is probably the most thrilling job in finance.

However, global macro investors are not without foes. In their case, there is not a singular nemesis like Skeletor, but more a hydra-like creature attacking them with new regulation, technology and machines, unprecedented central banking policies, amongst other weapons. Old and aspiring masters of the universe also frequently self-destruct, especially after winning streaks that boosted their egos. The past is littered with bodies and fallen stars are quickly forgotten.

Given that markets are continuously becoming more efficient, it is questionable if old school global macro investors can still provide value to capital allocators. In this short research note, we will explore global macro hedge funds.

MEASURING THE PERFORMANCE OF GLOBAL MACRO FUNDS

Global macro is a classic hedge fund category that has a long and colorful history. The most well-known global macro investor is likely George Soros, who became famous for making $1 billion of profits in 1992 when shorting the British Pound (consequently taking the opposite side to the Bank of England) and being listed second for generating the most money for his clients. Since its inception in 1973, Soros Fund Management generated more than $43 billion in profits according to a ranking by LCH Investme