Nov 23 Thinking big is all the rage these days with U.S. money managers. Many are hiring high-profile economists to help them better navigate global economic and geopolitical events.
Hedge funds and other institutional investors are tapping so-called macro thinkers like economists Martin Feldstein, Henry Kaufman and former Federal Reserve Chairman Alan Greenspan at a time when fundamental analysis is often being overwhelmed by big-picture political and governmental risks.
This year alone, hedge fund EQA Partners brought on former Federal Reserve governor Randall Kroszner, and Brevan Howard, a British-based hedge fund, hired Shelley Goldberg, a former commodities strategist at Nouriel Roubini's Roubini Global Economics.
Yet with the mediocre performance this year of macro funds that make wagers on big-picture events, it is surprising that even more narrowly focused hedge funds keep turning to famous macro thinkers for advice. Skeptics say it may simply be a case of fund managers looking to find cover for positions they take by bringing on a famous name to justify their moves to investors.
Indeed, it's been a frustrating year even for the best investors, not just managers of macro funds, which are down more than 1 percent year-to-date, according to Hedge Fund Research. The overall hedge fund industry is up a meager 5 percent, roughly half of the gain posted this year by the benchmark Standard & Poor's 500 index.
The rough time for hedge funds is showing up in some high-profile closures like former Goldman trader Pierre Henri-Flamand, who is shutting his Edoma Partners, citing "unprecedented market conditions." Former SAC Capital and Tiger Management portfolio manager Matt Grossman is winding down his hedge fund, Plural Investments, for similar reasons.
Others like hedge-fund titan Louis Moore Bacon are citing "disappointing" returns as the reason to pull back the reins and shrink some. Bacon, for instance, is returning $2 billion to investors in his $8 billion flagship Moore Capital Management fund. Bacon, who manages one of the better known macro-oriented funds, said even he has found it difficult to navigate the markets in the face of unprecedented central-bank intervention and government involvement to prop up ailing banks and national economies.
But the need for macro thinkers is a phenomenon that is not going away any time soon - if for no other reason than the markets have become increasingly chaotic and subject to strong gyrations emanating from world events that often have little to do with the fundamentals of a particular company or industry sector.
"I would imagine that amid so much uncertainty, a time when so much seems contingent upon the unknowable actions of policymakers around the globe, having some certainty about the underlying economic fundamentals takes on even greater importance," said Stephanie Pomboy, president of MacroMavens LLC. "It also gives one a framework for analyzing the likely fruitfulness of possible fiscal and monetary policy actions."
In that regard, it's why EQA Partners, whose expertise lies in currencies and traditional global macro strategies, hired Kroszner as a partner and chief economist, a new position.
And this fall, Eurasia Group launched a new Emerging Markets Strategy group, which will identify critical political risk themes that cut across the entire EM space. The group will be led by Christopher Garman, director of Eurasia Group's Latin America practice, with Alexander Kliment, a senior analyst in the firm's Eurasia practice.
Not only are big money managers hiring macro thinkers as consultants, but macro-focused research firms such as Penso Advisors, Eurasia Group, Macro Risk Advisors and Roubini Global Economics are being sought out for their expertise and access to top economists.
Macro Risk Advisors, for instance, has hosted private dinners and roundtable discussions for clients with Harvard University professor and economist Ken Rogoff and former Fed Vice Chairman Don Kohn.
MACRO THINKERS NOT BULLETPROOF
The macro marquee names don't necessarily translate into winning strategies, however.
Hedge fund billionaire John Paulson, whose flagship fund fell roughly 35 percent last year, admitted to his investors that in 2011, he was overly optimistic about the speed of the U.S. recovery and underestimated the magnitude of Europe's debt crisis.
Paulson, whose go-to macro guys are Greenspan and Feldstein, has called last year's performance "unacceptable" and said he was committed to delivering a "superior investment performance" in the future.
But Paulson, who hired Feldstein a year ago to help with his economic forecasts and to join his advisory board, is still licking his wounds, as his flagship fund is down about 12.5 percent through Oct. 31.
Overall, macro thinkers often don't manage money so they aren't in a position to understand hedging or mitigating risk. And some observers see the move by hedge fund managers to bring a big-name economist into their fold as nothing more than window dressing to give assurance to investors.
"These economists are hired for marketing purposes, not for their ideas," said Charles Biderman, founder and CEO of independent research provider TrimTabs Investment Research. (Reporting by Jennifer Ablan; Editing by Matthew Goldstein and Jan Paschal)