Goldman-Backed Hedge Fund Jumping 9% Leads Macro Rebound

By Katherine Burton

Todd Edgar, like most macro hedge-fund managers, couldn’t make money this year.
Then came September. Edgar, whose Atreaus Capital LP specializes in currencies and commodities, had been betting since June that the price of soybeans would drop because of favorable weather conditions that promised a bumper crop. On Sept. 11, the U.S. Department of Agriculture reported record harvests and expanding global inventories. Bean prices tumbled 8 percent through the end of the month. That and a larger trade on a stronger U.S. dollar turned a poor year into a good one, according to an investor.
Edgar, whose $650 million firm was backed
with $150 million from Goldman Sachs Group Inc.’s asset management arm in 2012, rallied 8.6 percent for the month and 9 percent for the year. He wasn’t alone. Rising volatility, concern over the global economy and Bill Gross’s abrupt exit from Pacific Investment Management Co. rattled the stock, bond, currency and commodity markets in which macro firms invest. The biggest funds, such as Paul Tudor Jones’s Tudor Investment Corp. and Andrew Law’s Caxton Associates LLC, rose between 3 percent and 4 percent in the month, thanks in large part to the jump in the dollar.
“We are pleased to see opportunities ripening for global macro strategies, with volatility increasing and divergent global central bank policies leading to a dispersion in expectations for interest rates and currencies around the world,” Anthony Lawler, a London-based money manager for GAM Holding AG, wrote in an Oct. 2 report.

Jones’s Prescription

Macro investing has fallen out of favor in recent years as low interest rates globally and a lack of big price swings in markets made it difficult for managers to make money. Clients pulled about $16 billion from these funds between the end of 2012 and June of this year, according to Chicago-based Hedge Fund Research Inc. The strategy eked out a 1 percent gain this year through August, compared with 2.5 percent for hedge funds on average, according to data compiled by Bloomberg.
Paul Tudor Jones, founder of the $13 billion Tudor Investment Corp. described macroeconomic investing as “boring.” at a conference in May. “What we desperately need is a macro doctor to prescribe central bank Viagra because otherwise it’s going to continue to be somewhat dull,” said Jones, likening an increase in interest rates to Pfizer Inc.’s blue pill for erectile dysfunction.
Last month, macro investors like Jones finally saw more of the big price swings they rely on.

Vix Jumps

The VIX, a measurement of expected volatility, has doubled since Sept. 18 to 24.64. The dollar rose last month against every G10 currency after the European Central Bank reduced all three of its main interest rates by 10 basis points on Sept. 4. The euro dropped almost 4 percent against the dollar and the yen sank 5 percent in September.
The surge in the dollar, along with the weakening economic outlook in China and bumper crops, hit commodities, with a Bloomberg index diving 6.2 percent, its biggest drop since May 2012.
Macro funds rose 1.1 percent last month as the average hedge fund lost 0.2 percent and the Standard & Poor’s 500 Index dropped 1.6 percent. Some funds that bet on stocks and credit lost much more. Billionaire John Paulson’s Advantage Plus fund that wagers on corporate events tumbled 11 percent in the month.
In comparison, Jones’s Tudor BVI Global Fund gained 3.6 percent in September, to put the fund up 1.1 percent for the year through Oct. 3, according to an investor. Caxton, which was founded by Bruce Kovner in 1983 and is now run by Andrew Law, gained 3.5 percent in September. It’s down 3.6 percent for the year through Oct. 7, according to an investor.

Bigger Gains

Graham Capital Management LP’s discretionary macro fund is up 2.6 percent this year through Oct. 7, according to an investor, after gaining 9.6 percent in September. Alan Howard’s publicly traded BH Macro Fund climbed about 4 percent in the month, and is up 1.2 percent for the year through Oct. 3.
Louis Bacon’s Moore Global Investments fund gained less than 1 percent in September, and lost 4 percent in the first nine months of the year, according to an investor.
Spokesmen for the funds declined to comment on performance.
This month, the dollar has retreated, including a 2 percent drop against the yen. It gained against just three currencies in the G10: the Canadian dollar, the British pound and the Norwegian krone.
Still, investors including GAM’s Lawler, say the outlook for macro trades may finally be improving.
Caxton received a vote of confidence earlier this month when a fund run by Goldman Sachs Group Inc. that purchases minority stakes in hedge-fund firms bought a 9.9 percent piece of Caxton. Goldman’s Petershill II fund has the option to increase its interest in Caxton to as much as 19.99 percent over the next nine months, according to a letter the New York-based hedge-fund firm sent to investors.
Atreaus reduced some of its dollar bet before this month’s fall, helping to hold on to much of September’s gain, according to the investor.