Chapter 4
Global Macro Investing
One of the earliest strategies employed by hedge funds is the global macro strategy. As the name implies, the strategy is globally focused and predicated on movements of securities that are a result of changes in macroeconomic factors. In addition to being one of the oldest strategies, global macro strategies are also some of the most popular hedge fund investing strategies today.
This chapter provides a brief history of the strategy, the organizational design of firms employing this strategy, some typical trades and profit or loss calculations used in the strategy, the tools commonly used to evaluate performance of the strategy, and finally a brief profile of some funds that operate in this space.
A discretionary global macro manager usually starts with a top-down belief in the direction of changes in macroeconomic variables and the relationship of those changes to the prices of financial assets, commodities, or currencies.
A manager starts with a view of the world in terms of growth or contraction, inflation or deflation, rising or falling employment, increases or decreases in productivity, changes in the pace of technology, and perhaps the trends in regulation or deregulation and trade among nations. Once the firm has formed a top-down view, a manager evaluates the historical correlation and relationships between the forecasted changes in external variables and the changes in financial asset, commodity, or currency prices. A manager must then ...
