WHAT CHALLENGES LIE AHEAD FOR ALTERNATIVES IN 2018?

By Diane Harrison

With year-end holidays approaching and investment action wrap-up and forward planning in process, investors are bracing for change in many formats. November seems like a good time to take an industry snapshot survey of portfolio managers, wealth advisors, regulatory professionals, and the like, and ask them a single question: What do you believe is the biggest challenge faced by the alternatives industry for 2018?

The responses include some predictable answers, mostly centering on performance, performance, and more performance, typically from those individuals most concerned with delivering alpha to their constituents. However, a range of other replies prove that the alternatives industry, which includes hedge funds, private equity, mutual funds, real estate, private debt and more, has a multitude of concerns that impact the community at large.

In the area of delivering performance, a variety of comments ranged from the succinct to the detailed. Most respondents agreed that, in 2018 just as in years past, alternative managers are going to continue to be pressured to demonstrate the value-add for investors. The robust equity market environment that 2017 is enjoying will add to this pressure, requiring alternatives managers to articulate the specific benefits their investments can add to a portfolio. A sampling of the concerns raised by survey respondents included these points

There needs to be a clear justification of added alpha and dissuasion that managers are not merely taking profit from management fees and incentive fees on the back of beta in the equity markets

• The continued discouragement of poor or mediocre returns from the industry's top funds colors overall market perception of the value in alternatives
• The sustained buoyancy of rising equities and corresponding lack of volatility eve......................

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  This article was published in Opalesque's New Managers a top-down monthly analysis, news and research publication on the global emerging manager space.