Hedge Funds Look to Macro for 2025: The Strategy to Watch
As 2025 approaches, hedge fund investors are turning their attention to macro strategies, anticipating a year full of volatility driven by global political decisions, economic policy shifts, and continued market turbulence. This focus on macro is a significant shift away from cryptocurrency, despite the latter’s impressive returns in 2024.
Macro strategies revolve around making predictions about global economic events and their potential impact on markets. Investors believe that these strategies will allow them to navigate the uncertain environment brought on by political and monetary policy shifts. With U.S. President-elect Donald Trump likely to play a central role in shaping these changes, investors are readying for an action-packed year ahead.
Why Macro Strategies Are Gaining Attention
Hedge fund returns in 2024 were heavily influenced by market volatility caused by unexpected political events like the U.S. presidential election and unexpected moves in monetary policies, such as rate hikes by the Bank of Japan. These events made macro strategies, which focus on large-scale economic factors, an attractive option.
“Macro seems interesting now given a more turbulent political backdrop and what it means for both fiscal and monetary policy,” said Craig Bergstrom, Chief Investment Officer at Corbin Capital Partners.
As hedge funds prepare for more market swings, it’s clear that many investors are placing their bets on macro strategies for 2025. Their focus includes understanding how fiscal and monetary policies under the Trump administration could impact everything from tariffs to inflation rates. These strategies could further influence the value of global currencies like China’s yuan and the euro, adding another layer of complexity to the markets.
The Crypto Conundrum: High Returns, But Uncertainty Looms
While cryptocurrency-focused hedge funds were the standout performers in 2024, posting an estimated 24.5% annualized return, the mood surrounding crypto in 2025 is more cautious. According to a survey of 239 investment firms by Societe Generale, macro strategies were ranked first, while crypto was at the bottom of the list for hedge fund strategies.
Despite the explosive performance of crypto in 2024, many hedge fund investors remain unconvinced about its future prospects. The volatility of cryptocurrencies and the lack of institutional demand for crypto trading strategies are key factors fueling skepticism.
“We haven’t seen a lot of institutional investor demand on the solutions side for crypto trading strategies,” said Carol Ward, head of solutions at the $175 billion Man Group. “Crypto might serve as a good diversifier, but the volatility is so high that it makes it a risky proposition.”
This sentiment is echoed by Benjamin Low, senior investment director at Cambridge Associates, who points out that while some funds have explored small-scale crypto investments, nothing substantial has come of it yet.
The Growing Influence of Global Policy Decisions
The global political landscape, particularly in the U.S., will continue to play a significant role in determining the success of macro strategies. If Trump’s administration moves forward with new tariffs or changes to trade agreements, it could spark fresh volatility in global markets. For example, trade tensions with China could weaken the yuan, while European currencies may also face pressure.
In response, hedge fund managers are preparing to analyze these developments closely. With inflationary pressures possibly affecting the Federal Reserve’s ability to cut interest rates, the economic fallout from new policies could lead to more significant market swings in 2025.
A Shift in Focus: Sovereign Bonds to Currency Markets
The focus on sovereign bonds is diminishing, according to Jordan Brooks, co-head of the Macro Strategies Group at AQR. With inflation now more balanced, Brooks believes the uncertainty will shift toward the $7.5 trillion-a-day global currency market. “Things are less certain across the board,” he said, highlighting the need for hedge fund managers to pay close attention to the ever-changing dynamics in the currency markets.
For many hedge funds, the volatility of the currency markets represents a new frontier of opportunity. With the potential for rapid shifts in exchange rates, funds are positioning themselves to capitalize on any changes driven by political shifts, such as Trump’s administration and its potential impact on global trade.
Is Crypto Ready for Prime Time in Hedge Funds?
Although some hedge funds, such as NextGen Digital Venture, have posted impressive returns by focusing on crypto stocks, institutional investors remain hesitant about diving headfirst into digital assets. The regulatory uncertainty surrounding cryptocurrencies, along with concerns about fraud and reputational risks, means that most hedge funds are staying away from large-scale investments in crypto.
“Hedge funds are exploring indirect ways to trade crypto, but large exposures are not there yet,” said Edo Rulli, CIO of hedge fund solutions at UBS Asset Management. While some funds have updated their documents to allow for crypto exposure, they are being cautious about taking on too much risk.
That said, a few funds have still found ways to profit from crypto indirectly. For example, multi-strategy funds have increased their exposure to U.S. spot Bitcoin ETFs, which track the value of Bitcoin without the need for direct ownership of the asset. However, as Anthony Scaramucci of Skybridge noted, regulatory discussions are still in their early stages, and it may take time for big institutions to embrace crypto fully.
The Bottom Line: Volatility Is Key in 2025
As 2025 approaches, the uncertainty surrounding the global political and economic landscape means that hedge funds are looking to macro strategies as their top pick. While crypto may still have a place in some hedge fund portfolios, it’s clear that many investors are less bullish about its prospects in the coming year.
The focus will likely shift to global policy decisions, tariffs, and currency fluctuations that have the potential to create major market swings. In such an environment, hedge fund investors will rely on macro strategies to navigate the complex and volatile financial landscape, betting on economic shifts that could lead to significant returns.
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