Any Hedge funds that specialize in warfare?
Recently I have been reading about Nathan Rothschild's bond plays in the 19th century. Basically invented arbitrage by transporting gold across enemy territory to sell for higher in a different city. Made his wealth by predicting the outcome of the war. Didn't invest in the South's cotton backed securities in the civil war because the North took New Orleans-no way to claim the collateral cotton if the South defaulted.Are there any hedge funds today that have strategies involving warfare? I would imagine that a team of rates traders, military strategists, and quants for economic forecast could make a powerful strategy.
This is an all-time topic header for sure
lol ya investors would love funding warfare activity
not funding warfare, just make positions related to war outcomes. Since war happens so frequently across the globe (including emerging markets) there should always be opportunities for positions. I’d imagine some global macro guys take positions like this?
investors for centuries have invested on war outcomes. In fact, the govie bond was created during the Italian renaissance to fund war between city states— Altough id imagine a Bond villain HF manager would bribe high ranking generals to support a certain outcome…
not funding warfare, just make positions related to war outcomes. Since war happens so frequently across the globe (including emerging markets) there should always be opportunities for positions. I’d imagine some global macro guys take positions like this?
investors for centuries have invested on war outcomes. In fact, the govie bond was created during the Italian renaissance to fund war between city states— Altough id imagine a Bond villain HF manager would bribe high ranking generals to support a certain outcome…
Not really. Big wars dont happen that often globally where there is a resolution/point of inflection/meaningful directional change in a 6month to 1.5yr period which is what you’re typically looking at in the HF world. Also by definition, wars are pretty unpredictable. It’s probably more akin to sport betting than it is to investing.
A lot of these wars that do happen in emerging markets are small and in niche markets where it’s difficult to even find a relevant asset class to express that view- let alone try to scale it at size. Huge liquidity constraints.
Or maybe sometimes you do find an asset class like say oil (price went up because of Ukraine/russia etc) But wait a sec you end up realising there are billion other factors driving oil and not just warfare which is your ‘speciality’.
Bottom line is yes in theory you can profit but at scale it’s probably not going to work and majority of this will fall under geopolitical risk which macro and commodities desks look at. They outsource the war knowledge to people who claim they are war experts and that’s it.
Funds are literally raising capital for the opposite of this dude. Avoid tobacco, warfare, alcohol etc.
Yes, they're highly clandestine though and pipeline candidates exclusively from Special Situations groups (in case you were wondering what those teams did).
Firm pays for Black Hawk rides home if you work past 8
Any book recommendations on these topics?
Niall Ferguson ascent of money, anything on Rothschild and the Battle of Waterloo, also there are some academic articles on the cotton securties of the south.
From Silk to Silicon by Jeffer Garten covers the history of Globalization through 10 individual stories. Covers Genghis Khan, Rothschild, Margaret Thatcher, Andy Grove, and others. Highly recommend.
Citadel made several billion trading outright and volatility in European natural gas and power due to Ukraine and supply disruptions. Ken even co-authored a WSJ op Ed with Niall Ferguson “How to Beat Putin with Natural Gas.”
I don't believe any hedge funds specialise exclusively in warfare, but certainly many global macro hedge funds make trades related to their view on how wars will unfold.
Take CQS for example, of which the founder Sir Michael Hintze has a military background himself. Back in 2015 they made a number of military related hires: General Lord Richards, Chief of the Defence Staff of the British Armed Forces from October 2010 to July 2013; James Shinn, Assistant Secretary of Defense for Asia at the Pentagon from 2006 to 2008; and Harvey Pitt, who oversaw the Securities and Exchange Commission's response to financial markets' reactions to the 9/11 terrorist attacks in New York during his time as the regulator's chairman from 2001 to 2003.
Military expertise, as well as geopolitical, economic, regulatory, etc., allow a hedge fund to develop an informed view of how global macro events (incl. war) will unfold, and make profitable trades accordingly.
lol.
That said, as a history buff I kind of see where you're coming from. Look into physical commodities trading:
https://www.bloomberg.com/news/features/2016-06-01/giant-oil-trader-vit…
If you like this article read Blas' The World for Sale. Commodities traders often deal in hot spots where local geopolitics and hence warfare can matter a lot.
That said that's not at all what these guys (and gals) do on a daily basis. A good intro of what the day-to-day is more about is this:
https://www.commoditiesdemystified.info/en/
Awesome article. Honestly, wish I had known about this back in uni, I would've worked for this rather than IB.
Is there a catch to this? No way this is how exciting most oil traders are, this has to just be the top execs and at the top firms doing interesting work like this?
I feel like I hear many commodities traders have interesting careers and love it all the way. The main drawbacks at many top shops is that it takes a while to become a trader (but some places higher top undergrads) and comp is very eat what you kill, unlike IB. Very underrated industry and super interesting work.
Mostly what the others said 1.) no straight up betting on war, 2.) wouldn’t be popular with clients anyway, 3.) wars themselves not frequent/big/predictable/main driver of assets, and 4.) commodities comes close to touching on these.
However, I think emerging market debt is the closest to this. Heavy use of quants and rates trades but military expertise/political specialist generally outsourced. Generally no straight up war betting but situations that came close- 1.) Iraqi sovereign bonds during isis insurgency, 2.) Ukraine during Russia invasion, 3.) Venezuelas under Maduro and related policies, 4.) mozambiques gas field security, 5.) Sri Lanka domestic politics/foreign financing/econ imbalances as drivers of default. Again warfare not central driver but I think closest you’ll find to what you suggest.
A lot of distressed funds bought Ukraine debt and warrants at ~20 cents during the earlier stages of the war.
stratfor used to run an internal hedgefund FYI
Sign me up for that
As mentioned; commodities, debt, FX all deal with these risks.
Well I try not to be dogmatic, but my opinion is that macro forecasting is already ineffective/ bad practice for fundamental analysis, let alone wildly unpredictable events like war predictions. Guys like Howard Marks and Klarman stress this all the time. I also asked in another thread whether betting on politics is good practice, after my dad and his pals sold stock based on guessing which party would win
I don’t think this is necessarily true. Klarman is right that investing on geopolitical events or macro forecasts is boneheaded for equities—but a fundamental “value” approach to rates, commodities, or FX is probably equally boneheaded. These asset classes shift dramatically during macro events.
That's true, cuz these folks (what I would controversially call the 'dogmatic folk' - Klarman, Marks, Greenwald etc) don't fish in the rates, commodities, FX etc pool in the 1st place cuz they think these assets have no intrinsic value (note the diff between intrinsic value and fair value - rates and FX defo have fair value) cuz they don't spit out cash flow. They fish in equities, real assets, bonds - things that have intrinsic value, and they don't use macro forecasts, let alone frankly unpredictable things like political outcomes or even wars. (note the famous study where the average prediction of many political science experts is no diff from an avg Joe chatting shit)
For asset classes like rates, obviously different styles apply.
A few points
- FX/rates most definitely both have cashflows…it may not be easy to to determine fair value but they most certainly have cashflows (I get that you’re posting their view so this is more push back against them but the reason those fundamental investors don’t invest in them is bc it is a very different skillset)
- successful investing based on political outcomes also includes policy stances which you have to take into account in macro products- this is far more robust that your retail election driven stock selling example and it is not about discrete forecasts like your political science example but instead thinking in terms of probability distributions and what is priced into to current assets
- this is generally mostly applicable to assets where politics is a major drive of value I.e. not US large cap stocks but instead think Ecuador sovereign bonds (niche, but a tradable asset nonetheless)
Totally agree that investing in US stocks based on politics is foolish but I wouldn’t broad brush the idea macro forecasting, political analysis and non equity products cant generate alpha as these dogmatic folks suggest …who knows the next thing people might say is buying undervalued stocks based on value investing principles underperforms growth and indices bc it is an outdated form of analysis…wait
There aren't enough "supply" of warfare. Look into funds that specialize in opportunities that occur around geopolitical events - ie. lots of global macro types. There are always a lot of geopolitics occurring so there will always be a certain level of demand.
Wellington Management
Really? Boring LO??
Come on: Duke of Wellington? Guy who helped win the Napoleonic wars?
Btw OP, what do you like about Hayek
hes based
The big macro funds do. Especially the directional ones.
The United States Congress
Bobby axelrod 9/11 trade vibes
Beyond macro/commodities and adjacent businesses which have a geopolitical component, I do know that like high level Pentagon people will do 1x1s w/ A&D investors with respect to stuff like fighter jet programs and procurement forecasts. But I think what you’re getting at is more suited for private markets.
Genghis Khan Global Investors.
No dude the daggone US Marine Corps specializes in warfare
Accident
Closest thing I think is a global macro shop. Placing bets on domestic and foreign economies using rates, equities, commodities, credit etc
1.) frontier distressed trades OTC with all the big banks
2.) country next door has a $3-4 bn curve that trades 5x5
3.) there are many that argue frontier debt is quite supportive of UN SDG's so +ve ESG
Agree that convertible war debt isn't a thing, but not for reasons described...really just a shortage of wars though as noted elsewhere Ukraine/Iraq/Ethiopia/Venezuela/Cote D'Ivoire all had tradable assets whose prices were driven by conflict (still a small group)
war isn't ESG enough to fit their LPs requirements.
Yes it’s called the Fed.
You mean like Och Ziff funding Mugabe’s thugs to steal elections?
Repellat rem velit vel laborum odit iure eligendi placeat. Rerum odit aut hic beatae voluptatem dolore adipisci. Libero suscipit provident saepe id at dolorem. Et illum eveniet vero fuga. Culpa cupiditate est voluptatem quis est. Quod facere cumque et dolore.
Aut at et ut. Officiis sapiente voluptatibus non omnis. Velit dolor et sit consequatur commodi.
Sit nisi ad at est consequatur quibusdam tenetur. Odio voluptas incidunt ipsam. Blanditiis autem commodi voluptatem ipsa eos minus nihil.
Veniam debitis saepe dolore quia omnis. Adipisci ullam in dolorem aut laudantium et. Autem vitae vitae impedit libero aut nesciunt.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Eligendi aut corrupti itaque beatae eius cupiditate quo. Est magni modi quo iure cumque repudiandae. Quasi qui voluptatem nobis ab. Eaque saepe expedita nostrum minima natus. Et repellendus hic architecto excepturi consequatur.
Non unde laborum assumenda quasi delectus alias. Est debitis architecto modi tempore voluptatem vel eum delectus. Impedit maxime facere dolorem sunt animi vitae sit. Ut impedit qui consequatur quidem veniam.
Officia atque numquam doloremque omnis sequi quis. Natus nam et ab eum tempore unde minima dolor. Itaque optio hic culpa consectetur voluptates quae delectus. Ex velit dolor vero veniam laboriosam.
Vel numquam non quod distinctio dolores hic. Soluta earum veritatis repudiandae est architecto ut natus libero. Esse corrupti accusantium alias sed autem quia. Alias totam ea aut voluptatum quia consequuntur. Aperiam recusandae occaecati voluptatibus et iusto accusamus est. Ut voluptatem possimus quibusdam molestiae a alias.
Ut occaecati sequi minima et necessitatibus labore neque. Quasi aliquid qui ea consequatur possimus deleniti suscipit. Dignissimos quia eos et rem debitis. Quia fugit aut modi molestiae laborum aut magnam laboriosam.
Non neque porro itaque distinctio facere nihil doloremque. In vitae debitis eum harum excepturi laborum dolor. Quia est non tenetur quas. Ut sequi nemo qui.