Higher for longer: Macro opportunities in a higher interest rate environment
While previous papers covered multi-strategy, event-driven, and security selection funds, this paper focuses on how macro investing can potentially benefit from this environment — offering diversification and convexity within a hedge fund program.
The concept of liminal spaces seems apt for today’s financial markets and the challenging environment facing investors. 2025 has ushered in fundamental transitions, both politically and economically, and this sense of change remains in flux. Policy seems less predictable and sometimes inconsistent, creating an investing environment that can be both nebulous and volatile.
The prevailing sense of order that existed in prior decades is being challenged and this is altering markets, manifesting in less predictable and often more extreme patterns, flows and reactions across asset classes and regions. As terms of global trade and power are being re-written, additional forces such as AI are creating new unknowns against a backdrop of ongoing climate and geopolitical uncertainty.
The potential outcomes for investors in markets both positive and negative seem wide open, benefitting macro investors with a richer opportunity set driven by this shift in interest rates, enabling these strategies to deliver sources of both diversification as well as convexity within a hedge fund program.
Higher for longer
Areas to consider in the current market
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Diverging global interest-rate pathsCountries are moving through the rate cycle at different speeds, creating opportunities in relative-value, curve-shape and directional interest-rate trades. Macro managers can express these efficiently and build in convexity through options.
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Currency dislocationsShifting rate differentials, tariffs, geopolitical tension and de-dollarisation are driving sharp, short-lived moves across FX markets. This backdrop rewards agility and disciplined risk management.
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Commodity-driven diversificationGeopolitics, climate, trade dynamics and AI-related demand shifts are creating opportunities across precious metals, industrial metals, oil and energy. Macro strategies can access these thematically and flexibly.
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Top-down equity opportunitiesHigher rates are increasing dispersion across sectors and regions. Macro managers are monetising themes such as AI, defence, healthcare and energy, which have been strong contributors this year.
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Volatility and convexity opportunitiesFrequent volatility spikes allow macro managers to use options to build asymmetric payoff profiles. Long-volatility and tail-risk exposures provide meaningful protection when markets gap.
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Complementary macro stylesDiscretionary macro has thrived in fast-moving conditions, while systematic macro struggled early but recovered as new trends developed. Combined, they can strengthen diversification and resilience.
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Broader diversification benefitsTraditional diversifiers are behaving less reliably in today’s transitional environment. Macro strategies add flexibility, liquidity and a global opportunity set that enhances overall portfolio resilience.