Allocators discuss a ‘replacement’ for George Soros
As one of the industry’s veteran macro traders retires, hedge fund allocators tell InvestmentEurope who they think could take his place.
George Soros is reimbursing the last external investors in his Quantum fund, deciding after 40 years to focus on running his private wealth – still $24bn.
He made his wealth primarily via Quantum, a freewheeling global macro strategy generally betting on effects that global economic variables exert on instruments such as FX, rates, fixed income, commodities and equities.
Quantum’s 1992 punt against sterling was its best known. It made 69% that year, but also 31.5%, 29.6% and 53.4% in the three preceding years.
Compare that to global macro’s returns over four years to 2011 – down by 0.3% to August, after 8.1% (2010), 4.3% (2009) and 4.8% in 2008, when it was one of only three profitable strategies.
Omar Kodmani, senior executive officer at Permal, says macro portfolios are less concentrated now than the 1980s and 1990s.
He says: “The traders’ universe is much more diverse, with a lot more risk control at fund level and greater focus on downside protection. Since 2000, the big discretionary macro shops monitor and control their risk and VaR very carefully.”
Since 2008, strong trends in macroeconomic data and brave political decisions helped fuel interest in the strategy, which reached new high assets of $419bn in June.
Instability in the Middle East, FX markets, sovereign debt and central bank policies all helped.
Kodmani says: “Macro remains one of the hardest investment disciplines to get right. To be a good discretionary macro manager, you need to be a top investor, top economist and top political analyst. Global macro is about finding trading opportunities from bad policy, among other things.”
Javier Uribarren, investment director at Stenham, said: “Last quarter, as peripheral EU countries came under growing pressure to show monetary and fiscal restraint, investable trends developed and the fundamental outlook became more accurately reflected in the pricing of financial assets. This environment is ideal for global macro strategies.”
Andrew Gibson from IAM cautions: “In macro, a lot of tools have implicit leverage, and there’s a degree of directionality to it – that is, where the risk management is critical to the culture to perform scenario analysis. So, if you are faced with a set situation, you know what the reactive steps are.”
As Soros vacates portfolios, who would allocators fill the gap with? Names mentioned anonymously include TT International’s Timothy Tacchi, Covepoint Capital Advisors’ Melissa Ko, and WCG’s Barry Wittlin.
For someone more akin to Soros’ style, one mentioned Appaloosa Management’s David Tepper.
Wittlin, formerly head of Merrill Lynch’s global rates group, received assistance from ML in 2007 to establish the WCG Master fund. One allocator says Wittlin’s expertise in fixed income and rates is impressive.
“He is the model of a macro manager – experienced, utterly focused and dedicated. He has strong structural views and trades around them, mainly on short-term horizons.
“We do not look at a macro manager in a single way and are sceptical strategy labels are helpful – some are low correlation, others low correlation defensive. Macro and equity managers will do well at different points in the cycle.”
David Coombs, head of multi-asset investments at Rathbone Unit Trust Management, selects Brevan Howard.
Its flagship Master fund made 58% over two years to June 2009.
He mentions the strict risk controls at the London-based group, and elegant analysis of macro economic variables.
Two issues arise if one elects the firm. First, it accepts only “strategically important” new investors into its Master fund.
It is also reportedly returning about $2bn to investors in the $28bn flagship fund. It was up 11% this year by 31 August.
One allocator named the TT International fund. Launched in 1989 by Tacchi, it has had only one losing year since 1994, falling by 0.45% in 2008.
Last year, it made about 14%, helped by long gold and short euro positions.
One allocator said TT plans to cap the $1.3bn strategy “to make sure this is still nimble, so they are being quite conservative in asset raising”.
An investor added: “It was Tim’s long track record we appreciate, running money through various market conditions.”