What next for the macro hedge fund managers in the mire?

The tide has turned for the macro hedge fund manager. Having spent the past few years in a snazzy wetsuit rubbing "Sex Wax" into his board, a big wave has come and knocked him (sometimes her) off his feet. The future will not be like the past.

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Bloomberg reported yesterday that, as suspected, macro hedge funds are hurting. Macro veteran Caxton Associates was down 15% between the start of March and March 20th. Taula Capital was down 9.6% over the same period. Brevan Howard's Master Fund was down 6%.

Painful for the firms, these figures are excruciating for individual portfolio managers who not so long ago were surfing from job to job on huge pay packages. Two thirds of portfolio managers (PMs) at some funds are likely to be 9% down on their high water marks in the estimation of Mark Pacitti, a former Citadel and Goldman Sachs quant. "Some of these pods are done. Not struggling. Done," Pacitti says. 

What next, if so? Maybe a return to a trading seat in bank? One top macro headhunter says there's still demand for macro traders on the sell-side and that a loss in this market will not be career ending. "Everyone has lost money," he says. "Every element of the market has been distressed at some point in the last three weeks and the normal hedges didn’t work. It's not that 30% have lost; 100% have." War in the Middle East has been worse for macro hedge funds than last April's tariffs and maybe even COVID, he adds. At least, during COVID, markets weren't reliant on Trump's tweets.

However, macro traders who seek shelter in banks may find the view there displeasing. "The linear business in banks has lost money to hedge funds as the bid-offer is tight," says one senior rates trader at a bank in London. "Banks use a softer risk limit model than hedge funds do now, and people find it hard to come back to the sell-side. They've enjoyed the lifestyle on the beach too much," he adds.

Another senior trader at a bank in London says the macro hiring market is not happening. "There are a lot of people looking for jobs and too few openings for them," he tells us.

So what do you do if you're a macro hedge fund manager sitting on a large loss? Maybe nothing. As we noted earlier this week, portfolio managers who moved recently on large guarantees are fine: they get paid no matter what. But even portfolio managers without big guarantees can sit it out on salaries.

"A lot of people have lost money, but they haven't done anything stupid," says the headhunter. "Everyone knows that this is an unusual situation." He observes that hedge funds that might usually be inclined to cut people with losses are being unusually tolerant: "Hardly anyone has lost their job. Most people are being asked to close positions and wait until the dust settles."

One senior macro trader with experience in both banks and hedge funds says much depends on individuals' track record and the circumstances preceding the loss. "A lot of people have reached their stops, but it all depends how they were reached and the communication with risk managers," he says. "If you've been irresponsible they will move to terminate you. But if you're an established portfolio manager who communicated well, they will tell you to de-risk your positions and see what happens when things normalise."

Longer term, though, the trader predicts a more aggressive shakeout. "Right now, the senior management of these funds isn't reacting because they're occupied with the stability of the fund overall and the risk of drawdowns rather than individuals' pnl. - It will be three months or more before you see individual PMs leaving." 

The people who are most exposed have recently moved into hedge funds from banks, says the trader. "They have no track record, the fund doesn't know you well, and you just lost money quickly." It's still not the end. "They will be slowly recycled back into the industry when things get better," he suggests. 

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