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Alternative Market Briefing

Hedge funds predicted to deliver annual excess returns between 5-6% with low volatility

Tuesday, July 07, 2015

Komfie Manalo, Opalesque Asia:

The lack of hedge funds’ excess returns since the financial crisis put the industry under rising pressure. However, the latest white paper from Lyxor Asset Management estimated that hedge funds could deliver annual excess returns in the 5-6% range with low volatility.

"We believe that diversifying portfolios with an increased allocation to alternatives is particularly attractive at this point in the cycle," said Jean-Marc Stenger, Lyxor CIO for alternative investments. "Hedge funds have demonstrated their ability to protect portfolios against wide market fluctuations, a scenario that we cannot exclude as the Fed turns the screw. Hedge funds have underperformed recently but their long term track record is outstanding."

He said that while inflows remain robust, hedge funds have significantly lowered both management and performance fees to adapt to the new environment. In evaluating the causes of hedge fund underperformance, Lyxor said it found that the fall in bond yields was caused by Fed’s QE program that has negatively impacted the industry.

Alpha generation has started to rise since mid-2014

Additionally, the equity beta has fallen while stocks rallied and alpha generation has shrunk as a result of the low volatility/low dispersion environment, Stenger said. He added that alpha generation has started to rise since mid-2014 and the environment is now i......................

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