Global Macro: a Fund of Hedge Fund’s Perspective

Omar Kodmani and Andrew Rozanov

This article was first published as a chapter in Global Macro: Theory and Practice, by Risk Books.

This chapter will consider global macro strategies from the point of view of a fund of hedge funds (FoHF). While Permal Group runs one of the oldest and largest funds of global macro funds in the industry, the authors have made a conscious effort not to use it as the basis for the ensuing discussion. Instead, we have opted to use standard hedge fund industry benchmarks to make a more generic case, while drawing on the collective experience of our firm to highlight various issues and challenges that we believe are relevant for FoHF practitioners and their institutional clients.

In the first section, we will consider global macro in the context of a multi-strategy FoHF portfolio. Specifically, we review the background to the renewed institutional interest in these strategies post-crisis, and focus on how they compare to other hedge fund strategies in terms of long-term return, risk and diversification potential. We make a particular point of looking at how global macro has performed historically during and immediately after major financial crises.

The next section shifts from a