Global macro is a discipline whose exponents are newly confident of its risk budget efficiency. The head of alternative investments at State Street Global Advisors, Ric Thomas, said an approach combining typical ‘convergent’ strategies with ‘divergent’ strategies – those which aim to profit when fundamental valuations are ignored by the market – reduced portfolio volatility and negative outliers and increased the chances for capturing upside “fat tails.”

The chief operating officer of Graham Capital Management, Robert E. Murray, said his firm’s ‘systematic global macro’ approach, which uses systemised trading algorithms to trade the global liquid futures and foreign exchange markets, exhibited the opposite characteristics to most hedge funds styles in that it had a return profile with positive skew and low kurtosis. When assessing risk, funds should not aim to manage their physical exposures nor their economic exposures but rather their market risk exposures, Stern suggested. Correlations came in for their share of criticism in the light of their movements which were largely in step during the height of the crisis last year. “You can’t trust correlations because they’re linear,” Jon Glass, the CIO of Media Super, said.

And more strongly: “Correlation is a fraud in our industry,” Ray King, director of Sovereign Investment Research, said. And while hedge funds of funds (FoFs) were being increasingly scrutinised by large super funds even prior to the crisis, because of their extra layer of fees, they too are adapting to the postcrisis environment. Randall Dillard, the CIO and cofounder of Liongate Capital Management, said that his firm was one of the first to be very active in portfolio construction, which other hedge FoFs were now doing. Prior to the crisis there was little competition in the trading strategies of hedge FoFs. Clients could not get out because they had nowhere else to go and were worried they might not be able to get back in.

Hedge FoFs were also looking to better manage liquidity by clearly segregating clients on the grounds of liquidity through increasing use of separately managed accounts (SMAs). But SMAs were very expensive to run and most super funds were too small to run their own programs. Another lesson from the crisis being addressed by hedge fund managers, as well as super funds, is counterparty risk. The prime brokers who handled a range of business for hedge fund managers have recently come under attack from the big custodians, in particular. Matt Unsworth, head of Australian equities for Merrill Lynch, said that prime brokers might take on a different look in the future. But their central premise would remain to provide solutions across a range of services rather than just “the cheap liquidity of the past”.