Displaying items by tag: hedge funds

BNP Paribas conducted its annual alternative investment survey which revealed some interesting insights. There were 238 respondents, collectively representing $1.2 trillion in hedge fund assets, who were surveyed in December 2023 and January 2024. 


Many allocators are expecting a regime change with more opportunities for alpha and beta with US equities underperforming. This type of environment is more amenable to hedge fund performance. 


In contrast, hedge funds struggled in 2023 with an average return of 7.6%, while the S&P 500 was up 24%. It was the inverse of 2022 when hedge funds outperformed while both fixed income and equities were down double-digits. Interestingly, hedge funds outperformed global equity markets by 5.7% over the full 2 years. 


Going forward, allocators seem bullish on hedge funds. History indicates the asset class outperforms during periods of ‘high, stable rates. Over the last 2 years, allocators increased their expected return from 7.5% to 9.1%, which is the highest over the last decade. 


In 2023, there was a $100 billion in net outflows due to rebalancing flows, underperformance, and competition from risk-free returns at 5%. This year, survey respondents are expected to add $17 billion on a net basis. 

Finsum: BNP Paribas conducted a survey of asset allocators. They are increasing allocations to hedge funds as the asset class has historically outperformed in high, stable rate environments.


Published in Wealth Management
Friday, 15 December 2023 06:10

Alternatives 'Essential’ for 2024: JPMorgan

JPMorgan issued its 28th annual Long-Term Capital Markets Assumptions report, which provides long-term forecasts for various asset classes in addition to detailing risks and upside catalysts. One of the recommendations in its report is to add a 25% position to alternative investments which it believes will increase returns by 60 basis points on an annual basis while also reducing volatility. 


In terms of the 60/40 portfolio, JPMorgan is forecasting annual returns of 7% which is a slight decrease from last year’s forecast of 7.2% annual returns. Pulkit Sharma, JPMorgan’s head of real assets and alternative investment strategy, remarked, “The alternative asset classes are becoming more essential than optional in the broader 60/40 toolkit. Inflation is going to be more and more sticky, so you need more diversifiers and inflation-sensitive asset classes.” 


The bank also believes that investors need to seek out diversification especially, since it expects continued geopolitical uncertainty and volatility stemming from central bank decisions. Fixed income is simply not an effective diversifier in higher-inflation environments as evidenced by the last couple of years. Some of the alternative assets it recommends boosting diversification are real assets, hedge funds, and private credit. 

Finsum: In its annual long-term review and forecast of various asset classes, JPMorgan slightly reduced its expectation of long-term returns for a 60/40 portfolio and stressed the role of alternatives to boost returns and improve diversification.


Published in Wealth Management

Alternative investments can add value to portfolios by boosting returns and leading to increased diversification according to a recent UBS white paper on the subject. Within the category, it favors specialist credit hedge funds, macro hedge funds, secondaries in private equity, and specific types of private debt. However, it does note that investors should be aware that there is a tradeoff in terms of reduced liquidity. 


The firm recommends a 20% allocation and believes that it could lead to an annual increase of 50 basis points in the long term. It’s increasingly of interest given the asset class’s strong performance in 2022 when stocks and bonds both delivered double-digit, negative returns. In contrast, most diversified alternatives’ indices saw performance between -6% and +17%. In terms of forward returns, the bank forecasts return between 6% and 11% over a full business cycle.


In terms of specific strategies, UBS recommends specialist credit hedge funds which focus on differences between strong and weak companies. It also favors secondaries in private equities and notes some attractive discounts in the space. The bank also sees upside to private debt given that yields are around 12% with lower default risk than high-yield credit. 

Finsum: UBS is bullish on alternative assets. It believes that the asset class can boost returns while also increasing diversification. 


Published in Wealth Management

According to the third annual Alternatives Watch (AW) Research Investor Compendium commissioned by Vidrio Financial, there was a strong uptick in the amount of alternative investment mandate activity across some of the largest institutional investors. In 2021, AW's second annual compendium tracked a total of $130 billion in new capital across more than 900 individual institutional investor mandates from 50 of the top alternative allocators. That figure jumped to $144 billion in 2022, an increase of over 10%, across more than 1,000 individual mandates. There was also an increase in investor interest across infrastructure and real asset strategies to $6.9 billion and $4.9 billion, respectively, as those strategies act as inflation hedges. Other key findings include a muted slowdown in private equity assets, while there was a pick-up in activity in hedge funds as large institutional players sought to purchase risk-mitigating assets throughout the year. In addition, total private equity and venture capital mandates accounted for over half the mandates in the compendium and were spread out across the world, as investors embraced life sciences and technology sectors. Mazen Jabban, Chairman and CEO, of Vidrio Financial, stated, "As we saw in this year's Compendium performance data, Vidrio Financial continues to observe alternative asset classes growing in importance for institutional investment teams who work to take advantage of illiquidity premiums in the private markets while also seeking greater transparency into these types of investments."

Finsum:According to the third annual Alternatives Watch Research Investor Compendium, there was a 10% uptick in the amount of alternative investment mandate activity across some of the largest institutional investors.

Published in Wealth Management

According to Man Group boss Luke Ellis, investors should get used to volatility in the markets. Last Tuesday, Ellis predicted inflation will remain high because of strong wage growth in much more volatile markets. He stated, “It will take a lot of years before inflation is put to bed again. We’re in a different paradigm.” He added, “The base effects are running out and we still have very significant wage inflation. It’s not squeezing services [sector] wage inflation, and services is such a big part of the economy. You can’t get consistently to [a] 2 percent [inflation target] when you have 6 to 7 percent wage inflation.” Ellis also said that he did not believe stocks had yet bottomed out. He compared the current environment to the 1970s when the real return from equities after inflation was about zero. His comments come as U.S. stocks fell in February with investors growing concerned that the strength of the economy might require higher interest rates, and the Fed’s preferred measure of inflation rose more than expected in January. In addition, both France and Spain also reported a rise in inflation, beating forecasts.

Finsum:Man Group boss Luke Ellis predicts inflation will remain high due to strong wage growth in volatile markets.

Published in Wealth Management
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