Investment Memo: Alf's Macro Hedge Fund

Deal Basics:

Alf reports he's already raised $65 million early interest from HNW individuals, family offices, and hedge funds.

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If there's sufficient demand, we'll also schedule a Q&A session via Altea.

Deal Overview

Alf’s Macro Hedge Fund employs a global macro strategy to navigate and exploit the opportunities arising from the shifting macroeconomic landscape.

The fund anticipates benefiting from the increasing global macro volatility driven by demographic changes, fiscal policies, and differing central bank reactions worldwide.

Using a proprietary quantitative macro framework alongside rigorous risk management techniques, the fund seeks to deliver uncorrelated positive returns, aiming for 10%+ yearly returns while minimizing downside risk through strategic diversification and volatility-adjusted position sizing.

About Alf

Before starting Macro Compass, Alfonso was Head of Investments for ING Germany, managing around $20 billion across various asset classes.

In December 2021, he quit the industry and started The Macro Compass to bridge the gap between Wall Street and regular investors with educational macro insights and actionable portfolio strategy.

What's the opportunity

The global economic environment is undergoing significant shifts, including demographic changes, more aggressive fiscal policies, and diverging central bank strategies, creating fertile ground for macro-driven investment strategies.

This is what Alf thinks will look different over the next ten years:

A more aggressive use of fiscal deficits and a tectonic change in voters’ demographics will lead towards more macro volatility: by 2028, Millennials and Gen Z will account for ~50% of US voters;

In a world with more volatile growth and inflation, the standard 60/40 portfolio is highly suboptimal: global macro strategies act as a great diversifier during these periods;

Central Banks around the world will adjust to this new paradigm in different ways, and global economies will react differently: macro opportunities will be abundant.

​Alf’s Macro Hedge Fund is positioned to capitalize on these changes by employing a sophisticated strategy that combines Peccatiello’s proprietary 8-Quadrant Framework for identifying global macro regimes with tactical asset allocation across various liquid instruments.

Based on the model's output, the fund will invest in a variety of asset classes, including futures, options, liquid ETFs, stock indices, bond markets, FX, and commodities.

The fund's approach to risk management—sizing trades in a volatility-adjusted manner and structuring them for convex upside payoffs—further enhances its proposition.

This should result in a skewed returns profile, with about half the trades being losers but the winners winning big.

Historical performances in 2022 and 2023, with total returns of +25% and +11%, respectively, demonstrate the potential efficacy of the fund’s strategy in successfully navigating macroeconomic volatility.

Deal Economics

The fund is targeting an initial $50 million from early investors. Investment allocations will be directed towards exploiting macroeconomic opportunities across stock indexes, sectors, bond markets, FX, and commodities, eschewing single-stock trades for a more coherent global macro strategy.

Notably, early investors benefit from a preferential fee structure—1.10% to 0.95% management fee and 16% to 14% performance fee depending on the investment amount, significantly below the standard 1.50%/20.0% fee structure.

FAQs:

How does the fund adjust its strategy in response to changing inflationary environments?

Our proprietary macro process uses money creation trends to identify rapid (dis)inflationary bouts ahead of time. It therefore positions and hedges the portfolio accordingly.

What mechanisms are in place for the fund to capitalize on shifts in global interest rates?

The fund runs a fundamental scoring mechanics for all the largest economies in the world; in that way, it's able to identify relative fragilities/strengths which can be capitalized through FX or interest rate trades

Can you elaborate on how the fund plans to navigate periods of political instability or major geopolitical events?

The fund is always positioned to purchase, not sell optionality. This allows the payoff profile to explode to the upside when (geo)political uncertainties arise.

What approach does the fund take towards emerging markets in the context of varying economic growth rates?

We build long/short positions in all liquid instruments (rates, FX, equities) and in all geographies including EMs. We run fundamental scoring models including political (in)stability factors and emerging-markets related drivers to identify long/short opportunities there.

How does the fund assess and react to global fiscal policies and their impact on investment opportunities?

Fiscal policies are an integral part of our process. A large use of deficits provides more volatility to the macroeconomic cycle, and we track fiscal policies in the 10 largest countries in the world to make sure we incorporate these in our investment framework.

In what ways does the proprietary 8-Quadrant Framework guide the fund’s investment decisions during economic recessions?

The 8-Quadrant Framework is able to identify upcoming periods of weak growth ahead of time and consensus because it relies on statistically significant leading indicators and money creation trends. This allows the fund to be able to hedge and/or profit from periods of economic weakness.

Next steps

If you'd like to get involved in this opportunity, please click the button below.

If you'd like to get involved in this opportunity, please click the button below.

If there's sufficient demand, we'll also schedule a Q&A session via Altea.

If you have any questions or comments, please shoot me an email.
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Cheers,
Wyatt