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Overview
The HedgeFund.net database tracks over 250 hedge funds that invest with a Macro investment strategy. A Macro hedge fund typically aims to exploit dislocations between global economies through the use of various securities including equity, debt and commodities/currencies. Macro funds are similar to multi-strategy products in many ways in that they may use different investment styles investing in various markets to achieve results. However, the major difference is that the various styles are used to complement one another rather than resemble independent trading silos. The common thread that runs through the fund interconnects the different portfolios through a macroeconomic perspective. This perspective, the investment strategy, continually evolves to accurately reflect changes in foreign policies and the local economies within those countries, often influenced heavily by changes in foreign monetary policies.

Performance and Statistical Overview The majority of investment companies running hedge fund products have had a challenging last twelve months. They have been forced to navigate through a global economy battling a recessionary environment complete with a collapse of the financial industry, plummeting commodity prices and a complete reversal in emerging markets. The distress has caused a significant increase in volatility resulting in a global flight to quality. This has forced spreads to widen to the highest levels in recent memory between assets that would be considered risky and safe.

Total Asset Levels and Flows
According to the HFN Hedge Fund Asset Flows & Trends Report, at the end of Q4 2008, there was an estimated $151.46 billion invested in macro funds. This is a decrease of 19.34% or $36.33 billion since the end of Q2 2008; the quarter when assets peaked for the Macro funds since HFN started tracking asset flows in Q4 2003. The majority of the decrease between Q2 2008 and Q3 2008 was due to poor performance while the majority of the decrease between Q3 2008 and Q4 2008 can be attributed to investors redeeming capital.

The redemptions from macro funds during the fourth quarter were over 10x as large as any prior single quarter for the strategy since HFN started tracking asset flows in Q4 2003. These redemptions followed a difficult Q3 which had three straight months of negative performance. For the strategy, this was a major drawdown albeit, much better than the average hedge fund on HFN or the S&P 1200. For most macro funds these redemptions likely represent profit taking and prevention against further losses within the strategy.

Performance by Fund Size
Figure 5 shows return rankings over the LTM for all funds classified with a macro strategy reporting AUM in the HFN database. Funds in the 50th percentile group have outperformed the average hedge fund in the HFN database over the LTM with performance in the range of -6.34% to 5.00%.

A trend that is often found within peer groups in the hedge fund industry is that smaller funds will typically outperform in the higher percentile groups while the larger funds will be much more adept at managing underperformance in the lower percentile groups. This trend does not hold true for macro funds this past year, the largest funds significantly outperformed the smaller funds across each percentile group; the most extreme being the funds in the 90th percentile group where the return for the largest funds is double that of the smallest funds. Macro funds managing less than $20 million in the 90th percentile group returned -33.54% in the LTM. This would lead one to assume that the smaller funds are willing to take larger risks in the pursuit of generating better returns, yet the 90th percentile group still significantly underperforms the larger funds. Instead, a more valid argument would be that the larger funds may have the ability to attract a higher level of talent or use their size to extract larger returns from smaller opportunities.

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