Macro hedge funds have a had a brutal 2015 and it continues to be tough so far this year. If it weren’t for the fact that they’re in small and plush offices, you’d think they would make up a large proportion of the people on the revived Sad Guys on Trading Floors Tumblr account.
But actually, despite the overriding sense of gloom, the outlook for macro traders – which take positions on the outlook for particular countries or regions rather than specific companies – isn’t entirely bleak. Yes, Fortress Group, Bain Capital and Blackrock all closed macro funds last year, and Brevan Howard’s flagship fund lost money for the first time in its history, but there are reasons for optimism. Macro hedge funds led the way for inflows in the fourth quarter, with $2.5bn, according to Hedge Fund Research, and some are even hiring, suggest recruiters. Others, like Windhaven Capital Management’s Stephen Cucchiaro and ex-Goldman Sachs trader Leland Lim, are launching new funds.
“A lot of global macro trading strategies are overexposed, but I actually think they’re going to do fairly well,” says Gustavo Dolfino, president of the WhiteRock Group, a financial services executive search firm. “There are a lot of opportunities.
“With oil prices plummeting, war in the Middle East, fears about Russia and China, internet hacking and much of Europe in shambles, global macro is a good place to be,” he said. “Hedge funds want to hire bigger players who’ve run a few marathons – traders in the top quartile or in some cases the top 5% in terms of performance.”
Smaller firms that have global macro strategies may take a pause in hiring, but having a bad January won’t affect larger firms’ hiring, according to Deepali Surti-Vyas, the head of the Americas global markets sector at Heidrick & Struggles.
“[Hedge funds like] Lone Pine Capital and Viking Global Investors, you’re not going to see them have so much attrition or staff cuts – that’s not how they operate,” she says.
Despite the reputation of some hedge funds to fire traders after even brief periods of underperformance, most hedge funds are reluctant to show too many traders the door if markets are tough. If you’re a macro trader with a good track record, the chances are that there will be openings, says Surti-Vyas
“The business is obviously very cyclical, and being a trader at a global macro fund as opposed to being concentrated in one sector or area means that you have to have more of a broad-based best-athlete skill set,” she says. There is opportunity if you can improve and grow into those [global macro trading] seats, and there will be a good number of seats open in 2016.”
Global macro traders’ compensation is between 20% to 30% above-market compared to traders in other sectors or asset classes, Surti-Vyas said. Because global macro requires a broad-based skill set, such roles warrant higher compensation than some of the more sector-focused traders.
“Traders’ and portfolio managers’ compensation is very dependent on seniority, size of firm, how the firm did in a given year and degree of scarcity of that type of function,” said Adam Zoia, the CEO of Glocap, a recruitment firm. “There is no particular scarcity of macro traders and hence their comp is driven by these normal factors – how their fund did, how senior they are and how big their fund is.
“Comp is positively correlated with how the fund did, how senior they are and how big the fund is,” he said.
For example, portfolio managers at medium-sized hedge funds, where the average rate of return was approximately -4% last year, still received a mean bonus of $202k, according to Glocap. PMs’ base salaries averaged $240k in 2015, meaning that there total comp for the year was around $442k. Assuming that global macro portfolio managers earned 20% to 30% above that, per Surti-Vyas, that would put their 2015 comp in the $530k-$575k range.
In contrast, portfolio managers working at a large top-performing hedge fund firm earned a base salary between $200k and $250 plus a bonus in the $600k-$1.2m range last year, per Glocap. Adding 20%-30% to that, the average total comp of top-performing global macro PMs portfolio at a large hedge fund was likely in the $1.74m-$1.9m range.
Other hedge funds suffering disappointing performance are definitely making layoffs. Glenview Capital Management and Kingdon Capital Management are cutting jobs, according to recruitment sources, but neither have announced these publicly.
“There are at least 20 hedge funds that we’re aware of that are under pressure to cut costs and potentially staff,” adds Surti-Vyas,
Photo credit: djvstock/iStock/Thinkstock
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