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Bailey McCann, Opalesque New York: Recession fears are growing among institutional investors, according to the latest CIO letter from UBS O'Connor.

According to O'Connor CIO Kevin Russell, institutional investors have largely priced in the risks from the war in Ukraine and are now considering recession as the biggest potential risk. The letter notes that stagflation concerns are now at the highest level since 2008.

Against this backdrop, "alternative investment strategies did provide some relief to investor portfolios, as the return and volatility profile was broadly superior to that experienced in beta strategies spanning equities, credit and duration fixed income," Russell writes. "However, the macro landscape was challenging enough to also weigh on returns across alternative strategies, as investors had to grapple with uncertainty from an economic, policy, and political perspective."

Going forward, Russell argues that interest rate volatility will be the best barometer for economic, policy, and valuation uncertainty. Interest rate volatility has been moving steadily up over the quarter and remains elevated, indicating ongoing uncertainty. Still, there are some cautiously optimistic trends. The letter says, "capital structure-centric strategies are particularly interesting right to us now as they typically control overall credit and equity beta well and are generally long optionality."

O'Connor is also positive on merger arbitrage which has a low ......................

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