Macro Hedge Fund performance has been a notable casualty this year with much of it being blamed on the way that markets aren’t following the usual play books in response to tried and tested headlines and information. Middle east blows up? Oil tanks. US Economy picks up and taper is on the way? USTs soar. The list of ‘that shouldn’t have happened’ trades is pretty long but if you are a savvy macro investor you either saw the changes coming or you adapted to new rules pretty fast. So the poor performance is due to either macro being packed with mechanists who recite the mantras of the past and don’t adapt, or something else is happening.
I have met a lot of hedge fund portfolio managers over my years and in my eyes they can be pretty much be broken down into the following
Hugely brilliant who know they are brilliant
Hugely brilliant who think they are average
Hugely average who think they are brilliant
Hugely average who know they are average
Hugely poor who think they are brilliant
Hugely poor who think they are average
Ones who were let go last year.
The hugely brilliant who know they are brilliant I will always doff my cap to and enjoy any pearl they drop before swine such as I, but I will run a mile before becoming the butt of their joke.
The hugely brilliant who think they are average are a delight and I would sit at their feet all day as the boy would at the feet of the great philosopher.
The hugely average who think they are brilliant I will accept for their ability to be average and maintain a job in a world that is ruthless. However I will always grimace at their peacocking and wince at their airs and wonder with deep suspicion as to what it is that makes them think they are brilliant.
The hugely average who know they are average I always have respect for, for it is they that remain courteous inquiring and eager to engage on a level playing field.
The hugely poor who think they are brilliant I am quite happy to kick down the career stairs if I can and there is never a staircase far away in that business.
The hugely poor who think they are average I will give charitably to, but I will know that they are, in reality, not long for this world.
Now let’s cut to the chase. There are portfolio managers whom I have met who couldn’t argue their way out of a paper bag and yet have managed to peacock and maintain well paid jobs in otherwise ruthless institutions. It is they that I have always assumed were the luckiest traders alive, or had photos on the boss, or had other ways of making sure that their position was secure. Mostly they could be characterised as a number two, in both metaphorical terms and in market menagerie terms (see here). Otherwise known as Dickus Arrogancis.
Dickus Arrogancis, I soon realised had a particular skill in making money. The amount of business he would allocate to his brokers was rarely based on deep thought or probing economic analysis, but more on market contour analysis. Well, that is what he may well have termed it, but to the Joes on the street it was information. Of course not INSIDE information, just information inside . The whisper that Mr Big was ahead of him on the bid, the nod that buying now might be a good idea rather than in five minutes time. The suggestion that perhaps if there was to be an interest in the fix then it may just be left hand side.
Which of course sounds preposterous as that sort of behaviour would have been sniffed out with the investigations into fix fixing when every trader communication was examined for any sort of leak. But in my opinion, the number of bank clients investigated for use of information that may have been at least a bit borderline has remained remarkably low. Remarkably. If one was a cynic, which of course I am, I could suggest that it is easier for a bank to fire its own quietly than drag a huge customer into it, lose them and face potentially huge lawsuits from said customer. Not that this ever happened of course, but hey-ho, what do I know.
But the information game has changed and though I am sure the shoe-phone has adapted to survive, the risk reward has changed drastically and even if past misdemeanours (that never of course happened) went undetected, the jungles that are home to Dickus Arrogancis are no longer handing him a bounty of fruit and perhaps he is now an endangered species. Perhaps also some of the downturn in some macro fund performances is not solely due to the macro rules being different this time. The regulatory ones are too.
If so, goodbye and good riddance, Dickus.