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Alternative Market Briefing

Parsing Long/Short Equity Liquid Alts Performance, Fees and Net Exposures

Friday, May 26, 2017

Matthias Knab, Opalesque:

Thornburg Investment Management writes on Harvest Exchange:

Investors interested in long/short equity mutual funds would be well advised to consider more than their much-more competitive fees vs. private hedge fund peers. To genuinely hedge the long components of a portfolio, look for lower net long exposures in a long/short equity allocation, and added value on the short side even in rising equity markets.

The sharp focus on investment management fees nowadays has brought private hedge funds under heavy scrutiny, along with their generally poor performance against long-only benchmark indices. So expectations that liquid alternative mutual funds, which effectively offer the same strategies as the limited partnerships (LPs) but at a much cheaper price, would outperform their aging prototypes, after fees, are entirely reasonable. After all, '40 Act liquid alt mutual funds typically charge flat management fees of less than 2%, which is a far easier net-of-fee performance hurdle than the LP's old compensation model of a 2% management fee and 20% profit cut.

But at least in one segment of the liquid alt space-long/short (L/S) equity investing-it turns out not to be the case: the old-fashioned LPs have outperformed their young mutual fund progeny, net of fees, Thornburg's Connor Browne ......................

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