Global Macro Hedge Funds See Losses As Greece Staggers

The developing story of the Greek debt crisis, which has gotten even more puzzling after the referendum, has governed the global macro investing theme for the past few months. However, the result of the referendum seemed to have little impact on the Forex market where all the major shake-ups were expected. The euro initially sold off and fell 1%  but climbed back to 1.1068 later in the day. Other Eurozone countries which are also facing financial troubles with the European Union experienced pressure in their bond markets. Yields of 10-year bonds rose in Spain and Italy.

Global macro hedge fund index fell in tandem with S&P 500

In the U.S., investors and Hedge Funds had maintained a relatively calmer reaction to the debt crisis in Greece. However, last Monday, things were less in order than they are today. The S&P 500 managed to erase all of its gains for this year with a 2.09% decline on June 29. The move would have likely affected many global macro hedge funds as it corresponded to a 2% decline in the HFRX Macro/CTA Index on a day-to-day basis, as noted by Chris Dieterich of Barron’s.

The HFRX Macro/CTA Index was down 2.55% in June and has lost 1.35% YTD. A review of performance among global macro hedge funds shows mostly losses in the month of June. Hugh Hendry’s Eclectica Fund was down 1.2% through June 19 with a net return of 10.12% for the year. Harmonic Alpha Plus Fund took a loss of 3.9% through June 19, cutting its YTD return to -5.7%. The $800 million Rubicon Global Fund fell 3.22% in the same period, reducing its gain for the year to 3.9%.

Among the bigger players, Paul Tudor Jones’ B.V.I. Global Funds slipped by around 1.8% in the month through June 19, trimming its total return to just above 1%. Caxton Global Investment Fund was down 0.55% through June 23, bringing its YTD return to 3.67%. Moore Macro Managers lost 0.7% through June 11, bringing its YTD return to 3.5%. MKP Opportunity Offshore slipped 1.32% within the month through June 19. The $2.5 billion fund managed by MKP Capital Management is up 4.7% for the year.

Mount Lucas Management’s MLM Macro Peak Partners fell 4.6% in its $832 million fund. MLM Macro Peak’s total return for the year was 2.43% through June 19. Omni Macro’s $1 billion macro fund was down 0.81% within the month and has recorded a lukewarm return of 0.38% YTD.

Will Grexit be a Lehman moment?

In a recent note seen by Moneycontrol, Perella Weinberg Partners’ Global Macro fund said it will take some time to establish if the Greek debt crisis will be a defining moment in economic history. Maria Vassalou, portfolio manager at the macro fund, likened the gravity of the expected Grexit to the 2007 Lehman fiasco, explaining, ”One of the many questions that remain is whether this is a ‘Lehman’ moment or not. It might be, but I think nobody can answer this question with great certainty at this point. It will have to be seen.”

PWP Partners is a New York-based asset management firm with over $10.6 billion in AUM. The global macro fund was launched in 2013. The PWP Global Macro Fund is down 1.37% for the year after a 0.15% return in May.

At the same time there are several other hedge fund managers who find the possibility of Grexit unlikely and believe that its predicted effects on the global markets have been hyped. Julian Robertson said that the culmination of Greece crisis will have minimal impact on global economy. Leon Cooperman has also voiced the same views, he said that it is unlikely that either outcome will cause a major shakeup in global economy.

De-risking at macro and CTAs will hurt markets

Barclays PLC (NYSE:BCS) (LON:BARC)’ Keith Parker also commented on the synchronized returns at global macro fund hedge funds and the larger stock market. In a note last week, Parker said that due to the trend-following tendency of this hedge fund strategy, further de-risking in these portfolios will have significant effect on the general markets. Regarding positioning, Parker noted a bias towards long peripheral Eurozone bonds as compared to longs in European equities and shorts in the euro. Parker also said that macro fund returns have the highest correlation with Italian 10-year bonds, whereas correlation to the euro has fallen over time.

Given the negative action in Spanish and Italian bonds that has accompanied the developments in Greece, it is likely we will see more losses when hedge fund returns are updated for the full month of June.