Active and dynamic allocations
Pharo does not have to maintain benchmark exposure to all regions or asset classes every year. “While our portfolios tend to be balanced across region and asset class over the long run, they can be very focused on a given region or asset class in any single year. Every year brings a different opportunity set and a different mix of products and regions,” says Fonkenell.
FX resurgence and nimble trading in 2024 and 2025
Over the past 2 years, for instance, foreign exchange has been a very interesting asset class for Pharo. “In 2024, there were a lot of opportunities in FX driven by a number of factors: elections in many parts of the world, divergent views on monetary policy and a strong theme of U.S. exceptionalism. And I should mention that FX is our most liquid asset class, so it gave us the ability to be more agile and adaptive in our approach during a year that was dominated by political events. In 2025, FX continued to be an asset class where we saw a lot of opportunities, but many of our expressions have been in the opposite direction of our views from 2024. This has been driven by the Trump administration’s approach to global trade, economic policy, and some portfolio rebalancing by large global investors such as pensions funds and insurance companies. Again, FX allows us to change our views more quickly and efficiently, and this has helped us to weather the volatility that markets faced in the first half of 2025,” says Fonkenell.
Africa embraces orthodox economics
Regarding regional exposure, Pharo has identified a number of extremely compelling opportunities in CEEMEA, specifically Africa, over the past 2 years. “This is largely because many countries in the region have adopted more orthodox policies recently and valuations simply became too cheap to ignore. Given that we are one of the few truly macro players in Africa, we have sought to provide access to these opportunities in multiple ways. First, we provided our Macro Fund investors access to our Africa Fund via a fee-free share class investment in May 2024. Second, we launched a co-invest product in June 2024 directed toward some of our highest conviction ideas in the space,” says Fonkenell.
Increased emerging markets flows despite trade wars
In general, growth in global trade has been good for growth in emerging markets. Pharo thinks this will continue to be the case but deglobalization and trade wars do present a risk to this trend. “That said, it is interesting to note that the most recent increase in anti-trade measures launched by the current U.S. administration in April led to a marked increase in investor flows toward emerging markets. In fact, the persistence of flows into emerging markets assets since April 2025 has not been seen since the mid-2010’s. Perhaps this suggests more about the relative levels of ownership between U.S. markets and emerging markets, but it does increase our conviction in the liquidity and resilience of emerging markets as an asset class,” observes Fonkenell.
Local research on the ground including UAE Africa hub
Even with all the data readily available to global investors at the touch of a button, Pharo does value having direct interaction with local policymakers and investors as part of their investing process. “In fact, we think that as data continues to become more prolific and widely dispersed, context and perspective may be an increasingly important part of how investment decisions are made. This is part of the reason why we have continued to invest in our research capability, and it is, indeed, part of the reason why we have relocated our Africa team to Abu Dhabi. Given the increasing interconnectedness between the continent of Africa and the Emirates, we think our Africa team will benefit from being closer to African policy makers and large strategic Middle Eastern investors that are increasingly involved in Africa. For example, Senegal is, now, dealing with a debt crisis due to a large amount of borrowing that was unreported by the previous government. A visit to the UAE by the country’s Prime Minister, Ousman Sonko, in early December was followed by a high-level Emirati delegation to Dakar. We think that the UAE will play an important role in helping Senegal get back on track,” explains Fonkenell.
Risk management revisions
Pharo was recognised early on for its forward-looking approach to risk management. The framework has evolved through events like COVID-19, inflation shocks and geopolitical volatility.
As already mentioned, risk management has been one of Pharo’s key focus areas over the past 3 or 4 years. This investment has not been a new structure from the ground-up, but rather a more robust structure laid upon a defined and consistent foundation.
“We have always provided our portfolio managers with a risk management system that is clearly articulated and applied equally across all portfolio managers. Our framework allows portfolio managers room to navigate emerging markets and the volatility that can accompany the asset class. We do this because we expect our portfolio managers to be able to generate higher returns than typical macro or multi-strategy portfolio managers,” explains Fonkenell.
As the firm evolved, Pharo expanded its risk management framework without altering its central pillars. “Additions were made to mitigate concentration risk, reduce drawdown speed and quantify risks not otherwise measured effectively using a standard VaR methodology, among others,” says Fonkenell.
Diversity of thought and brainstorming
The multi-portfolio manager model and diversity of backgrounds have always defined Pharo, and the team has become ever more diverse to enrich the investment process.
“Because we operate in an open, collegial environment, diversity of thought is a huge source of strength for us. It is what allows our portfolio managers to be sounding boards for one another and ultimately what makes our funds capable of weathering shifts in sentiment and preference. At Pharo, we strongly believe in collective intelligence. When we ask ourselves: ‘Will the Chilean peso be weaker or stronger in 3 months?’, we are more likely to be right when the discussion involves our Chile economist, our Chile execution trader and three or four portfolio managers who closely follow Chilean markets. We know from our 25 years of experience that such a collective brainstorming exercise is more likely than not to result in the correct answer,” reflects Fonkenell.
Specialist portfolio managers – but no pod shop
Pharo has doubled the number of portfolio managers in the Macro Fund over the past few years and increased diversification by hiring and developing portfolio managers specialised in regions or products. “This specialization can help increase the overall knowledge base of the portfolio manager team while providing orthogonal return streams to the Fund,” points out Fonkenell. Portfolio managers have come from the buy side and the sell side. “Some portfolio manager hires have come from other hedge funds where their risk management framework was too stringent to allow an emerging markets-focused portfolio manager to generate strong returns. Others have come from banks where Pharo was known throughout their careers as the household name for emerging markets macro,” says Fonkenell.
“So far, we can confidently say we have benefitted from the additions to the team. But as a firm that still relies on having all members of the team contribute to our meetings multiple times per week, there are some practical limitations to the growth of our portfolio management team. Because on our philosophy and modus operandi, we will never be a pod shop,” declares Fonkenell.
