Pharo Macro Fund: Euro Contagion will Spread to Emerging Markets


Pharo Management’s flagship hedge fund Pharo Macro Fund has produced annual returns of 11.4% since its inception in 2005. The hedge fund is down -0.37% year to date. For April the fund was down -0.68%.

currently has over $2 billion under management. Its Sharpe ratio is exactly one.

Assets under management by Pharo Macro Fund LTD. have been growing steadily over the years, and it has more AUM, and over 8 portfolio managers compared to other hedges.

Pharo Management is a multi-billion alternative asset manager based out of the United Kingdom. The firm specializes in emerging market credit and currencies.

Guillaume Fonkenell, a managing partner, and the founder of Pharo Macro Fund is of the opinion that the diversification, of the fund works well, since all managers make decisions that affect their particular portfolio. All the managers trade in emerging markets, and have the leeway to adopt strategies that they feel will best serve the firm. In fact, managers can be on opposing sides of a market trade.

The main goal of Pharo Macro Fund is to generate attractive returns on risk adjusted asset classes from the emerging markets and also at opportune times for developed markets.

For 2012, sources close to Pharo Macro Fund reveal that risk assets are tumbling, due to the renewal of the European debt crisis. The fund managers are of the opinion that contagion will be spreading to other countries that have more solid asset fundamentals such as Latin America and Asian currencies.

This means that the risk aversion to these currencies will increase and as such Pharo Macro Fund will be more bearish.

In addition, Central banks in emerging markets usually face one common problem; choose growth, or battle inflation, as opposed to those in Europe and the US who normally struggle with low rates most of the time.

Pharo Macro Fund has around 80% macro exposure in markets that are emerging, but this is not its only forte. The fund also invests in currencies and rates.

Pharo is of the opinion that emerging markets currencies will appreciate with time, and they have a long way to go. In fact, they opine that the dollar will weaken 5 to 10% every year once currencies in emerging markets start rebounding.

Pharo Macro Fund protects its investments by sticking to strict rules. For example, the fund says that once a manager makes losses that surpass 6.5% in one month, they are kept off the market, for a month. In addition, if a manager looses out 12.5% in a year, the PM needs to liquidate everything, and  sit out for a year.

So, Pharo’s choice to go for the emerging markets may be paying off, and it can only remain to be seen if their performance will continue.