Alternative Investment Management Association – Industry view


Investors recognise that they have done very well investing in equities over the past decade. As we enter a new decade however, there are reasons to believe that the current financial cycle may be coming to an end.


Tom Kehoe CAIA, global head of research and communications at the Alternative Investment Management Association


TIME FOR A MORE ALTERNATIVE APPROACH: LOOKING BEYOND THE 60/40 PORTFOLIO


Interest rates are rising, as quantitative easing gives way to quantitative tighten- ing. Geopolitical tensions continue to increase, amidst a return to troubles in the Middle East, as well as an ongoing US/China trade war. Closer to home, the full extent of the UK’s decision to leave the European Union, including its impact on financial markets, is still very much unknown.


In its most recent forecast for this year, Morgan Stanley estimates that a classic investor portfolio made up of 60% equi- ties (either European or US) and 40% bonds will return just over 4% per year over the next decade, halving the returns made over the past 10 years. Given this less than rosy outlook, diversi- fying investment strategies is more im- portant than ever before for pension scheme trustees faced with managing investment portfolio risk, whilst identify- ing solutions that will generate enough portfolio returns to support future liabilities.


When markets become more volatile and beta returns deteriorate, investors will need to look beyond asset managers who provide investment returns that simply beat an equity benchmark. Those who believe that markets will exhibit increas- ing uncertainty and dispersion should consider making an allocation to the unconstrained strategies delivered by hedge funds.


Investors continue to view the key attrac- tion of allocating to hedge fund strategies as their ability to provide better diversifi- cation and improved risk-adjusted returns for their overall portfolio, through utilis- ing different risk and return drivers. An allocation can provide pension funds with more flexibility to protect and grow the capital of their beneficiaries. By integrat- ing hedge funds into the wider invest- ment portfolio, this should provide inves- tors with returns that are uncorrelated with returns derived from investing in equites and bond markets. Here are just a few examples of invest- ment strategies that could positively impact on a pension scheme investment portfolio: – Long/short equity hedge funds can the- oretically limit the losses suffered by their investors during a downturn of equity prices.


– Infrastructure funds can offer investors access to investments with timespans that outlast equity and bond cycles.


– Finally, many private credit hedge fund managers offer their investors exposure to a different part of the corporate world, access to the illiquidity premium (excess returns gained by investing capital for the long term), while providing essen- tial funding to a crucial pillar of the global economy.


If you would like to understand more about the benefits of allocating to hedge funds, AIMA teamed up with the CAIA association in producing a series of prim- ers on the hedge fund industry. To learn more about these as well as access our investor-led research on alter- natives please go to our website.


Design and production Portfolio Verlag


Printed in the UK by Stephens & George


Subscription rates UK £222 (9 issues), Single issue price: £27.50 Overseas €270 (9 issues), Single issue price: €33.50


Enquiries +44 (0)20 7822 8522 j.waterson@portfolio-institutional.co.uk


© Copyright portfolio Verlagsgesellschaft mbH. All rights reserved. No part of this publication may be reproduced in any form without the prior permission of the publisher. Although the publishers have made every effort to ensure the accuracy of the information contained in this publication, neither portfolio Verlagsgesellschaft mbH or any contributing author can accept any legal responsibility whatsoever for any consequences that may arise from errors or omissions contained in the publication


ISSN: 2045-3833 Issue 90 | February 2020 | portfolio institutional | 15


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46