Why are big macro names so allergic to being long equities? “Oh no no no. We are serious people here, sir. We do ‘sophisticated’ trading here.”
Investor preference. Big institutions don’t want their macro managers to be slinging directional beta in stocks, esp not if they are paying 2/20 for net long exposure that they can get for <20 bps elsewhere.
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Of course nothing to stop the macro names from putting on risk on trades that are correlated with equities (long credit, fx carry, long oil) and many do. Flies under the radar because allocators only ask about “equity exposure”
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Allocators will also run realised beta calcs... so also easier to hide in tails (upvar-var, CDS basis, MBS vs TBAs etc etc etc) You only blow up once :)
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Yes. I get that. But the macro PM job should be to identify the good trades. If it’s stocks, then it’s stocks. But I know i’m an idealist
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The 2/20 is paid for timing skills and trade picking skills, not for ‘exposure’. Or at least that’s how it should be thought of.
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Exactly this
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Although that's not as bad as "Global Macro" labelled funds turning into glorified leveraged EM carry monkeys, in my view, which LPs apparently are fine with.
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how do you reconcile this with many of the large long short equity managers running net long betas and still getting paid 2/20 despite half of their returns something you could get for free?
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I don’t know! As someone who meets a lot of investors for a quant fund it is infuriating that they are so laser focused on our net equity exposure, while equity L/S runs 40% deltas no questions asked
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