Steven Cho, a former Goldman Sachs Group Inc. currency trader, plans to start a macro hedge fund, a strategy attracting investors seeking to profit from diverging global economic trends.
Cho’s New York-based Kings Peak Asset Management LP is scheduled to start in the fourth quarter, according to four people with knowledge of his plans, who asked not to be named because the fund is private. Cho, who was global head of spot and forward trading of G-10 currencies at Goldman Sachs, declined to comment. He left in April after 18 years at the bank.
Macro funds, which make bets on stocks, bonds, currencies and commodities, have underperformed the Standard & Poor’s 500 Index every year since 2008, according to data compiled by Bloomberg, in part because central banks have depressed interest rates, making it harder to profit from discrepancies between countries. Firms including Tudor Investment Corp. and Mariner Investment Group LLC, which deploy the strategy, have forecast divergence in monetary policies as some economies grow faster than others.
“Central banks can’t all keep doing the same thing in tandem,” said Maggie Ralbovsky, a managing director at Wilshire Associates, which advises hedge funds and their investors. “The macro market, because of the divergence in conditions in different countries, is very prime for this kind of strategy.”
While some funds expect increased divergence, they may have to be patient. Bank of England Governor Mark Carney said today policy makers can wait for the economy to absorb more slack before increasing interest rates and U.S. Federal Reserve Chair Janet Yellen said last week the Fed expects interest rates to stay low for a “considerable time.”
That’s caused volatility to plunge across stocks, bonds and currencies. The JPMorgan Global FX Volatility Index fell to a record low 5.5 percent on June 19 from 11.8 percent a year ago. The Chicago Board Options Exchange Volatility Index, which measures price swings in stocks, tumbled 12 percent on June 18 to close at 10.6, the lowest level since February 2007.
Still, investors are seeking returns derived from macroeconomic themes and less correlated to the stock market, according to Chicago-based Hedge Fund Research Inc. That’s contributing to an increase in hedge-fund startups overall, with 289 in the first quarter, compared with 244 in the prior three months. Industry assets have increased to a record $2.7 trillion.
Top bankers and traders have exited the biggest Wall Street firms for more lucrative jobs at hedge funds, as regulation has intensified following the 2008 financial crisis and lower returns have pushed banks to cut the amount of revenue they set aside for compensation.
Currency-trading revenue at the 10 largest global investment banks declined 9 percent in 2013, according to industry analytics firm Coalition Ltd. Goldman Sachs Chief Financial Officer Harvey Schwartz said in October that the bank’s currency business had “difficulty managing inventory” in the third quarter as the firm posted its worst fixed-income trading revenue since the financial crisis.
David Wells, a spokesman for New York-based Goldman Sachs, declined to comment.
Banks are also facing at least a dozen regulators investigating allegations that traders colluded to rig benchmarks in the $5.3 trillion-a-day currency market. Cho’s resignation was unrelated to the currency probe and he left on good terms, according to two people with knowledge of the matter, who asked not to be named because the information is private.