JPMorgan sees this George Soros-inspired hedge fund strategy beating out private equity next year. Here’s why.

JPMorgan has issued a substantive recommendation favoring discretionary macro hedge fund strategies over traditional equity and bond allocations, as well as over private equity, for 2022 performance. The recommendation appears in JPMorgan's inaugural publication dedicated to the alternative investments industry and reflects the bank's view that macroeconomic headwinds—particularly inflation pressures and anticipated interest rate increases—will create an environment where discretionary macro managers can generate significant alpha.

The bank projects that alternative investments will deliver approximately 11% returns in 2022, compared to no more than 5% for traditional portfolios. This outperformance is predicated on JPMorgan's expectation that central banks worldwide will substantially reduce the unprecedented monetary accommodation deployed during the pandemic, creating significant price volatility across stocks and bonds. The bank explicitly cites expectations for a continuation of the bond bear market as a catalyst that "should help hedge funds to deliver another positive alpha in 2022."

Discretionary macro hedge funds—the strategy JPMorgan highlights—employ a methodology rooted in George Soros' pioneering approach: managers make large, concentrated directional bets based on macroeconomic analysis and public policy predictions. This contrasts sharply with the systematic, rules-based strategies that gained prominence in the low-volatility bull market environment that dominated prior to the pandemic. In 2019, macro-focused strategies struggled, with Hedge Fund Research's discretionary thematic macro index generating only 5% returns. However, 2020 demonstrated the strategy's resilience during periods of dislocation, and JPMorgan expects similar outperformance as market volatility resurges.

The recommendation comes with notable caveats. Several prominent discretionary macro managers have experienced difficulties in recent months amid whipsawing inflation expectations. Chris Rokos' fund, for example, is down approximately 20% year-to-date, indicating that execution risk remains material even as macro conditions theoretically align with the strategy's strengths. JPMorgan simultaneously projects that private equity will deliver less attractive returns, citing its elevated correlation to equity market movements—a structural disadvantage as the bank expects equities to face headwinds from rising rates and monetary tightening.