9/5/16

What professional backgrounds are today's and tomorrow's top global macro minds coming from? And how much does the environmental backdrop help explain this? Pretty simple question, but I think it's interesting to note the following trends for context.

The first generation of global macro investors (e.g. Soros, Steinhardt, Robertson, Rogers) came from a wide array of backgrounds.

The second generation (e.g. Kovner, Tudor, Moore, Dalio) of global macro investors overwhelmingly came from commodity backgrounds. And had Ivy League educations. The fact that commodities were booming when these guys, coincidentally, started their careers in commodities helps explain how important the environmental backdrop was in shaping their respective careers.

This third generation of global macro investors overwhelmingly came from two backgrounds: 1) prop trading, or; 2) PhDs with central bank/IMF experience. Prop trading flourished during the aughts because Glass-Steagall's repeal lowered regulations and capital requirements for the industry. IMF economists flourished during the late-90s/early-00s because the EM world was re-structuring then (i.e. defaults, Structural Adjustment Programs; e.g. Turkey, Argentina); when IMF economist demand waned and hedge funds boomed in the aughts, many of these economists transitioned to global macro. Lastly, central bank economists became increasingly desirable in the global macro world, during the 90s/00s, because central bankers increasingly drove financial prices during this time.

So today we see strong demand for prop traders and PhD economists from global macro funds. The aforementioned macro environment helps explain this. But if we rewound the clock, we'd see that different backgrounds used to be more coveted. And looking forward - prop trading is dying and, surely, the cult of central banking will wane. So there will be new and different macro factors driving shifting demands for the next generation of macro investors. What are these trends today? And what will they be in the future?

In other words, where are today and tomorrow's global macro greats going to come from?

Comments (29)

8/23/16

Quite clearly, there's a lot of focus presently on all sorts of computer-driven stuff, including AI etc... So, unless you believe that we're at "peak machine" at the moment, them macro studs are likely to be "big data" geeks, or whatever the appropriate term might be.

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8/24/16

I think it depends on if you think the world changed after 2008 or not.

8/24/16

Can't say from a hyper-informed perspective, but wanted to +1 SB you for such a well-laid out question - learned a ton from it.

I'd echo Martinghoul - can see quants being the macro leaders of tomorrow. Also, with such an obsession these days on central bank rate policy, I'd assume some top macro stars of tomorrow are middling away in Interest Rate Trading at the moment.

8/24/16

don't know if you consider this global macro, but I'd consider places like Two Sigma to be the future, so while fundamental stock picking will absolutely still have a place, I'd expect to see a lot more CS and EE majors than I would finance & accounting. probably masters & phd level too.

"The four most dangerous words in investing are: 'this time it's different.'" - Sir John Templeton

"The investor's chief problem - and even his worst enemy - is likely to be himself." - Benjamin Graham

8/24/16

Seconded on Two Sigma.

8/24/16

There haven't been too many great, "star-making" performances out there in macro lately either discretionary or more quanty stuff...the guys from Element Capital stand out and there are some smaller PMs at the more traditional names that have done well also and made good names for themselves. But the real answer is that there just aren't a lot of stars right now!

8/28/16

@AndyLouis how has this return flown so under the radar?

8/24/16

I will take a different tack from the established consensus and propose that the next global macro stars will be behavioral finance professionals who have experience living and working in emerging markets. They will be able to reliably produce alpha-generating ideas based on understanding these markets' emotional actors and investing accordingly.

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8/24/16

I think back office Citi interns in NJ have been churning out some good whitepapers recently

Best Response
8/26/16

I'm gonna take an unpopular/controversial stance: machines won't be able to come close to human ability in the macro world*. I guess you could say I'm 'long gut': I still believe in the power of exceptional people and their intuition, coupled with/supported by concrete analysis.

Digitized processing is a complement to human managers, not a replacement.

It's become a cliche, but the markets today really are unprecedented. Today, Fed-speak and central bank fetishization rules, but that's just because of where rates are and the inordinate, gravity-defying effect that Yellen, Kuroda, and their ilk are having on mkt's. The exit from today's monetary environment is extremely unclear (to me), and there's no past record to go off of. Algos are great at pattern recognition and backwards-looking extrapolation, but a lot less good at conceptualizing (at least for now) what a new world might look like.

Humans, on the other hand, we possess the ability to fathom the unfathomable, and that's why we are gonna kick robots' asses in the coming years/decades (IMO).

I should note that this is not a condemnation of HFT. This is a condemnation of those (I'm talking primarily about a place that rhymes with Smidgeblotter Fashociates) who believe that the world can be codified in a set of constant rules, like Newton's laws, which will remain true in perpetuity. If you are looking to a program to tell you what the big macro plays are going to be, you're doing yourself a disservice. If you're doing algo/HFT stuff to get in and out of minute ticks intraday, your job sounds extremely boring to me, but at least you're engaging in a viable biz model.

Now, as @Bondarb said, there really are no superstars. That strikes me as a very unstable equilibrium-odds are someone has something in the works.

This was sort of incoherent in retrospect, but whatever. I'll make a proper, longer post if you guys wanna hear more.

*my opinion excludes the possibility of generalized AI/the singularity... because at that point, there's literally no difference between man and machine, so my statement becomes moot.

8/26/16

Great post - Would love to hear more

8/26/16

Let's see that longer post you proposed

"Look, it tells time simultaneously in Monte Carlo, Beverly Hills, London, Paris, Rome, and Gstaad." - Louis Winthorpe III

"Losers average losers." - PTJ

8/27/16

Would also love to hear more...

8/31/16

Ditto.. will throw any bananas that I still have if that means anything haha

9/11/16

Really great post. I agree that while discretionary macro's getting the shit kicked out of it lately, it will hold up fine against AI/machine learning/more conventional quant approaches in the years ahead.
But I disagree with a number of your other points. For example, the current environment is not unprecedented - it's pretty similar to the the 1930s when deleveraging economies witnessed low growth, inflation, and rates. Relative to historical norms, monetary (and fiscal) policy drove the economy and markets an inordinate amount during this time. The same today.
And I disagree with your criticism of Smidgeblotter... slightly. As an example, Ray's drive to develop "timeless and universal" principles has caused its deleveraging template to completely lack nuance - and it's been poorly applied to the European and Chinese debt cycles. But it allowed Smidgeblotter to better anticipate the financial crisis - and manage it and its aftermath - much better than most.
Lastly, I think the jury's still out on the lack of superstars being an unstable equilibrium. There are many incredible minds in the industry - but also many charlatans, one-trick ponies, and folks that charged alpha fees for beta/alternative beta returns. Moreover, risk tolerance is so low these days that even brilliant and original minds have capitulated and become orthodox/risk-averse in recent years...
There are secular and cyclical elements to the recent decline of global macro funds. The hubris days - when fund managers were celebrities, masters of the universe, etc. probably won't return on the scale we saw before. And that's probably a good thing (which makes my question - asking about industry "stars" - a bit hypocritical. Really, it was tongue-in-cheek).

9/10/16

@Burke I really appreciate the thoughtful response. I want to reply in turn, but work beckons at the moment. In the interim, I just want to express my gratitude for the insightful reply

9/10/16

Waiting for the long post as well.

Burke - what a great question.

11/9/17

I think that there's going to be a solid place for the marriage of quants and the 'long gut guys'. Although they're underperforming now, I think that the quantamental funds like Point72 and BlackRock's newer funds will be the superstars of tomorrow. Human, tacit knowledge, in my opinion can provide edge over pure quantitative plays.

8/28/16

The next wave of stars will be those who can utilise this SJW wave and understand the millennials

Absolute truths don't exist... celebrated opinions do.

8/31/16

The Macro stars will undoubtedly either come from the quant world or be able to manipulate data/quant functions. I would guess such a person will be 50% quant/50% process/instinct.

I was skeptical too but recently had an insightful discussion with a quant analyst at a large asset manager. His firm was attempting to synthesize data to get an edge on a commodity. The quants alone couldn't crack it but when a specialist was brought along for this assignment, they got to a conclusion quickly. The end result was that they simplified a globally traded commodity down to a couple of important factors that, when incorporated into their algorithm, could predict direction of that commodity with ~80% accuracy. People alone don't stand a chance.

9/1/16

I think broad geopolitical knowledge and analysis are what will really differentiate the next generation of superstars of the macro world. If you look at the last 50 years (post WW2), the world has been relatively calm. Obviously it is never fully calm, and there have been lots of proxy wars, etc., but by and large, most major economies saw strong growth, consumers saw their incomes rise, and technology made people's lives better.

Looking out over the next 20 years, I don't think its entirely clear where growth will come from, how we will deal with rising pollution, aging populations, powerful non-state actors, increased isolationist and nationalist movements, etc. There are a lot of major changes happening at the same time that may move markets in violent ways. There are central bank dynamics here as well, but the global financial system doesn't seem to be anywhere near anyone's theoretical models at this point - what happens next is anyone's bet.

I think given that backdrop, an understanding of major geopolitical trends, relationships, tensions, etc. along with demographics and climate change, would be a great starting point to be positioned well for shifts to come.

I'm not sure what those shifts are exactly (or I'd be running a macro fund), but I get the sense things are going to change in ways we can't predict by looking at historical data. Certainly AI and quant techniques are helpful and increasingly sophisticated, but they may not very good at predicting things that have never happened before.

9/7/16

Look no further fam. Anyone remember these moguls?

http://nymag.com/daily/intelligencer/2012/10/world...

9/9/16

Pretty interesting difference of views:

From a legend...
http://dealbreaker.com/2016/08/paul-tudor-jones-tr...
To an Asian ex-physical shooter...
http://bloomberg.com/news/articles/2016-09-07/...
Still waiting to hear @MacroBruin's in-depth response

9/10/16

I haven't forgotten! Can't promise it will be up super soon, work is crazy for me right now, but it'll be up sooner or later

11/9/17
macro bruin:

I haven't forgotten! Can't promise it will be up super soon, work is crazy for me right now, but it'll be up sooner or later

bump

"He who makes a beast of himself gets rid of the pain of being a man." - Samuel Johnson

11/9/17

Bump.

Definitely interested in the longer post.

"The markets are always changing, and they are always the same."

9/12/16

Speaking of Smidgeblotter...

Not too shabby for them, this:
http://bloomberg.com/news/articles/2016-09-11/...

9/29/16

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10/1/16