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percent returns."13 Soros also allocated a considerable percent of the assets to outside managers, thus diversifying risk. Steinhardt had the same feelings. After his retirement, he no longer managed the bulk of his assets—he parceled it out to 30 managers. Most of those are conservative managers, not hedge fund managers.

MORE DIFFICULT ENVIRONMENT FOR GLOBAL MACRO

The situations of Robertson and Soros indicate that the global macro strategy has become a more difficult arena for sustainable returns.

While financial markets have changed significantly in recent years, many of the larger hedge fund managers have not. In the past, with substantial assets and significant use of leverage, global macro managers made enormous, risky investments around the globe in currencies, bonds, and stocks. Today, it is harder to find inefficiencies.

Finding obvious macro trends—the 1992 sterling crisis, 1993 Exchange Rate Mechanism (ERM) crisis, 1994–1995 Mexican debt crisis, 1997 Asian currency crisis, and 1998 Russian debt situation—is more difficult. Opportunities tend to be in the less liquid markets where size is an obstacle rather than an advantage. Liquidity premium has overshadowed second-tier opportunity, as liquidity depth outside G-10 is shallow. (G-10 countries include the United States, Japan, Germany, United Kingdom, France, Italy, Australia, Switzerland, Canada, and Spain.)

Globalization is rapidly curtailing market inefficiencies. The introduction of the euro cut trading opportunities for macro traders such as European convergence trades. International yield curve cross-currency plays had been core trades for global macro managers.

Liquidity effect will continue to plague global macro managers for some time: Brokerage firms are less willing to allow hedge fund managers to take lots of risks, which has hurt liquidity.

As bond and currency opportunities shrank, global macro managers shifted to stocks. With the Internet, hedge fund managers no longer have the edge as information in vast quantities is available to everyone. Larger mutual fund managers sometimes can get better information access than hedge fund managers.

Smaller, more specialized funds are gaining an edge. For example, among the best performers in 1999 were specialized funds such as sec-