Global Macro Hedge Fund

What is a global macro hedge fund?



A global macro hedge fund is a hedge fund that invests its based on analyzing global macroeconomics. For instance a fund of this type would consider changes in economic policy in the US by the Federal Reserve, Congress, White House, Congress, or the Treasury Department. Likewise it would take into consideration changes in economic policy by the European Central Bank, the Bank of Japan, and other central banks around the world, as well as their congresses or houses of commons and ministries of finance.


Moreover, the global macro fund would consider how these economic policies around the world interact with each other. How the decisions taken in Europe interact with those in the US and Japan as well as the G-20 and even frontier markets. It is all interrelated and important to analyze these relations.


On the other hand, there is the real economy to take into account as real GDP levels, growth, employment, productivity all play a role in defining the system in which asset prices reach their levels. It is important to know that the more the economy grows the more its currency is worth, as well as its bonds (everything else equal). For instance, having a stronger economy allows the government to have more tax revenue so that it has no incentives to grow the monetary base as in the case when it is falling short on revenue. Also, the government can improve the balance sheet by paying down debt or not getting more indebted, and as the economy grows, the debt becomes a smaller percentage of GDP. So even though, imports increase when the economy gets stronger, this effect is typically not enough to reduce the value of the domestic currency. This is just an example of how global macro hedge fund can take advantage of forces in the global financial system to make a profit.


For instance, there was just an energy reform in Mexico which will allow private companies to enter the energy sector, previously kept for the public companies. Now this implies that the economy will grow at a faster pace, investment will pour into the country, thus the currency improves as well as the bonds. Even the rating agencies improved their grade on the sovereign debt. So this is an example of how analyzing the presidential agenda and Congress can yield substantial profits.


Global macro hedge funds are considered to be quite discretionary in heir decisions as these type of decisions are not as easily coded as other more quantitative strategies. Their analysts tend to travel a lot to talk to policymakers and understand their positions on different topics. Analysts must develop strong relationships with key policymakers and influential people who know what is going on. It is highly useful for the large macro hedge funds to have the first and most reliable information on the progress of negotiations in terms of passing legislation. It can make the difference between making a large commitment with confidence and staying in the sidelines due to lack of reliable information that can prevent keep a profit.


Macro hedge funds seem to be some of the most glamorous types of hedge funds as they involve the relationship between money and power. Sometimes money has the most power as when George Soros broke the Bank of England. In the end, power resides in inevitable market forces beyond the control any actor in the economy. Sometimes actors just react to those inevitable forces such as central bankers forces to devalue their currency.


Global macro hedge funds are quite a force that in the best of lights keeps politicians honest, in the worst of lights wreak havoc in the global economy.