Ian Bremmer is one of the smartest people I know. He's the founder of Eurasia Group, a global political risk research and consulting firm. His expertise is geopolitics. Mine is alternative investments. Both of us think 2015 will be a year to remember, although for different reasons.
In an Altegris webinar, Bremmer outlined four impending crises, with worsening relations with Russia topping the list, followed by the fight against ISIS, China's muscle-flexing in the Pacific and struggles in Europe. My prediction is that the tumultuous global political and economic landscape could benefit global macro hedge funds and, by extension, strengthen the argument for active management.
For many of us, global macro funds were our introduction to hedge funds. Three legendary hedge fund investors, George Soros, Julian Robertson and Michael Steinhardt, made huge profits in the '80s and '90s with gutsy moves, most memorably Soros' correct $10 billion bet that the British pound was overvalued. They showed us there was a way to invest beyond stocks and bonds.
In the world of active managers, global macro fund managers are arguably the most active of them all. They have no index, no S&P 500 or Russell 2000 against which to measure their performance or invest in. They might go long or short equities, bonds, currencies or commodities, and they often reinforce their positions with leverage and derivatives. These "go anywhere" funds scour developed and emerging markets, trying to anticipate macro events and placing huge bets on those outcomes. They thrive on uncertainty and conflict.
Global macro hedge funds have posted ho-hum results since 2008, though. Volatility has been at historic lows. In their attempts to stimulate economic growth and escape deflation, central banks around the globe have printed money, kept interest rates low and bought up fixed-income instruments. The result has been that bond prices have gone up and yields have gone down. Investors have shifted assets to "risk-on" assets such as equities, sending many of those markets higher. In an environment of low volatility and rising equities markets, active managers have a hard time distinguishing themselves.
