Chicago-based Balyasny Asset Management is back in the macro game. The $2 billion multistrategy hedge fund firm, which specializes in long-short equity investing, started doing global macro almost a decade ago. Macro investing is the business of profiting from major shifts in national economies or politics, often trading in securities or currencies affected by the changes.
BAM’s original macro team left in 2006. Now the firm has another. Heading the new five-person group are former Stark Investments partner Ashok Bhatia and Colin Lancaster, who previously was president and COO of Milwaukee-based Stark. BAM plans to start offering macro as part of its multistrategy fund, then to create a stand-alone fund.
Macro investors tend to thrive in extreme times: “What macro as a strategy needs is volatility,” Bhatia says. There’s been plenty of that lately. In a note to investors after last month’s earthquake in Japan, Bhatia and Lancaster, who blend macro analysis with a fundamental approach, discussed the immediate to long-term outlook for Japanese equities. The pair also considered the cataclysm’s impact on commodities, the yen and global trading. Despite many unknowns, they asserted that a surge of yen repatriation was likely and that the one or two weeks following the crisis could see a rally in Japanese stocks before “a resumption of weakness.” So far, Bhatia and Lancaster have been right.
Unfolding events are among the many opportunities for global macro. Bhatia thinks the volatility and dispersion of global economic growth rates, particularly between developing and developed markets, should make macro an attractive strategy for at least five more years.
No wonder macro managers have been raising capital. In the last quarter of 2010, macro funds had net inflows of $6.65 billion, making them the most popular standard hedge fund strategy, according to Chicago-based Hedge Fund Research. And in a Deutsche Bank alternative-investment survey published last month, 528 investors managing a total of $1.3 trillion predicted that macro would be among the top-performing strategies of 2011, while more than 40 percent of respondents planned to increase their macro allocations.
Performance has lagged demand, however. The HFRI macro index was up 8.18 percent in 2010, compared with 10.32 percent for the HFRI fund-weighted composite index. One big problem is finding talented and available managers, and this partly explains why BAM — whose earlier macro team went independent — took so long to rebuild its macro presence. “We know firsthand how important it is to have a strong macro component during these volatile markets, but also how difficult it is to find a high-quality team,” says managing partner Dmitry Balyasny.
Luckily, Stark obliged. A victim of the credit crisis, the firm has seen its assets fall from some $13.7 billion in 2007 to $3 billion today. Key members of Stark’s macro team left in 2010, and after talks with BAM they decided the fellow Midwestern firm was a logical fit. BAM vice chairman Barry Colvin says the new hires share BAM’s risk management approach. “Risk management is not an overlay to the strategy,” says Lancaster. “It is an alpha-generating strategy.”
And there’s another reason for BAM to return to macro. The New York trial of Galleon Group CEO Raj Rajaratnam on charges of conspiring to trade based on insider information, and a federal insider trading probe, have thrown a spotlight on multistrategy long-short equity managers. Insider trading is rarely a problem for macro — giving those big-thinking managers an extra boost right now.
