All asset classes today face questions, but the menu of choices for allocators has also never been richer. Alternative risk premia (ARP) have contributed a credible, liquid source of return distinct from equity beta and duration. For those who aren't able, or don't want to invest with hedge funds, it opens up a new strand of investment. For existing hedge fund investors it provides new lenses for appraising performance and decomposing risk. For some hedge funds it may be a death sentence, but for the best investors it's a new platform against which to demonstrate value creation. And so, 25% of institutions are using alternative risk premia today, while in the intermediary channel it's probably less than 5% and has still great potential as well.
This rise of alternative risk premia strategies has created a lot more skepticism about the amount of value investors get from hedge funds, relative to the price they pay. Still, one of the main misconceptions is that hedge funds are no longer capable of adding value, while in fact allocators say they continue to find very interesting and consistent diversifying return streams from some high calibre managers. In this context, a new New SocGen study on managed futures fees has found that the majority of managers have justified "alpha" fees (page 11, 12).
Alternative risk premia isn't a replacement for hedge funds either (page 10,12). They can be used alongside, but there's a clear distinction between hedge fund strategies and risk premia strategies. ARP investing also requires a somewhat different mindset from investors (page 9). This huge surge of interest in liquid diversifying strategies - much of the allocation movement is largely being funded from equity allocations - is accompanied by a real hunger for education and talent. In fact a lot of organizations - distributors, intermediaries such as financial advisors or private banks and the like - have recently been hiring experienced people who used to work in the fund of hedge funds industry.
The Opalesque 2017 UK Roundtable, sponsored by Societe Generale and Eurex, took place in London with:
Andrew Dreaneen, Head of Liquid Alternatives, Schroders
Max Townshend, Investment Director, Local Pensions Partnership
John D Harrison, Partner, Group CFO and COO, Amplitude Capital
Dr Toby Goodworth, Managing Director, Head of Risk & Diversifying Strategies, bfinance
Markus-Alexander Flesch, Head of Equity and Index Derivatives Sales, Eurex
Jeremy Bruce, Managing Director - Hedge Fund Sales, Societe Generale
Duncan Crawford, Hedge Fund Sales & Capital Introductions, Global Head Prime Services, Societe Generale
The group also discussed:
The four different types of investor that are interested in ARP (page 9)
Which criteria are investors looking at when screening risk premia providers? (page 10)
Value, Momentum, Carry, Low Risk, Quality: Eurex' new factor investment vehicles based on futures (page 11)
Why UCITS hedge funds aren't really inferior to their offshore cousins (page 8, 20)
What to do with the growing power of investment consultants? (page 9, 16)
The two sides of pooling of managers and the return of hedge fund hotels (page 16, 17)
Will fee calculations be based on beta-adjusted performance going forward? Is the newly discussed "1 or 30" model pointing into the right direction or potentially giving rise to moral hazard? What about extended crystallization points? Views on the CPPIB paper from 2008 (page 11 - 15)
Darwinian pressure: Even mid-sized ($500m) players consider consolidation (page 15)
Changing investor preferences: Outflows from bigger and inflows to smaller managers (page 16)
The come-back of funds of funds (page 17)
Why the divestiture from hedge funds into private assets creates opportunities for liquid alternatives and ARP (page 18)
Selection and onboarding process at the highly successful Schroder GAIA platform (page 21-20)
UCITS or nothing: $700 billion net new business for alternative UCITS expected (page 21)
Why Amplitude is coming back to London despite Brexit. Why Brexit could be a non-event for UCITS managers (page 22-23). Potential upsides (page 24)
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