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Alternative Market Briefing

We will continue to see returns through fixed income substitution

Monday, January 06, 2014

Benedicte Gravrand, Opalesque Geneva:

According to Jay Raffaldini, global head product specialist, alternative and quantitative investments at UBS, we will continue to see returns through fixed income substitution within the hedge fund industry. Relative value strategies offer the best possibilities for that. He also expects the next wave of investors will bring a lot of money and expect lower returns.

The hedge fund industry was not a real industry in the 1990s, but just a handful of large managers and some private clients, he said during Terrapinn’s recent 2013 Hedge Funds World Zurich conference. As volatility at that time was high, it was dominated by CTAs. This is also when the concept of non-correlation was started.

2000-2002 was a terrible time for equities, but hedge funds shone then, he continued. After that, institutional investors came to hedge funds en masse for the uncorrelated returns. Volatility continued to fall after that, and strategies other that CTA and macro came to the fore. Correlations started in terms of risk exposure and investors de-risked equities. At that time, funds of hedge funds outperformed global equities and bonds.

In 2008, there was nowhere to hide, Raffaldini noted, but this was a temporary event as policies were implemented.

Since the......................

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