At a hedge fund conference in Geneva, Switzerland, in 1998, David Harding, the founder and managing director of London-based Winton Capital Management, went to the hotel bar to mingle with other attendees and was introduced to an American investor. When the man asked what kind of fund he ran, Harding replied, “an exchange-traded, directional global macro fund,” thinking he was being canny in describing his quantitative trading strategy, only to be told, “We don’t do CTAs.”
The response shocked Harding, but it shouldn’t have. Global macro has long been a difficult strategy for prospective investors to embrace, in part because it doesn’t fit neatly into ready-made asset allocation categories. At the classic, discretionary end of the spectrum, managers typically take a fundamental, value-driven approach to global markets and use the tools of macroeconomic analysis to develop investment ideas. At the opposite end, systematic or quantitative macro managers like Harding — a group that includes managed-futures traders and commodity trading advisers (CTAs) — use financial research and statistical analysis to identify opportunities and develop computer-driven trading programs to take advantage of them.
In the universe of quantitative macro strategies, the differences get even finer: Some managers can be characterized as traditional long-term trend followers whose programs look for confirmation that a price move has established itself in the markets before investing; others have developed more nimble, shorter-term trend-following programs capable of taking advantage of market volatility.
Over the decades investors have been spooked as much by the historical volatility of discretionary and systematic macro investment strategies as by their intellectual complexity. Although discretionary managers tend to run more-concentrated portfolios with exposure to certain macroeconomic themes (which can be a source of increased volatility), they are often quick to enter and exit market trends. Systematic macro managers are usually less anticipatory of market inflection points, but they won’t miss major moves; if market momentum is established — up or down — the program responds.
Harding says he has since made peace with investors’ calling Winton a CTA, but many hedge fund managers remain leery of the label, not least because CTAs have been stereotyped over the years as trend-chasing speculators — and dodgy ones, at that.
But the truth is that many of the most reputable, talented and successful global macro hedge fund managers in the industry got their start running CTAs. Harding did, as co-founder of commodities trading giant AHL (originally known as Adam, Harding & Lueck). So too did Louis Bacon, founder, chairman and CEO of Moore Capital Management, which has $16.5 billion in assets, and Paul Tudor Jones II, the founder, chairman and CEO of $11.4 billion Tudor Investment Corp.
See related article, “Macro Investors: Masters of a New Global Order”.
