Can hedge funds add value in today’s treacherous macro environment?

TOP Gun is playing at cinemas across the country and Kate Bush is climbing up the charts, but it is not only popular culture that is seeing a 1980s revival. Today’s macro scenario also mirrors that of the late 1970s and early 1980s. After the benign market conditions of the past 3 decades, what happens next could be very unsettling.

Inflation has been higher and more persistent than any of the central banks expected, and has become compounded by geopolitical events. It is clear that inflation expectations have become de-anchored and that the central banks are fighting an uphill battle to regain control.

In this situation, central banks have to tighten aggressively, which some are signalling they might do. It has been a long time since central banks have been this far behind the curve, and it is very difficult to soft-land the economy starting here, so the risks of a recession are very high.