Focus Sections » OTHER FOCUS SECTIONS » ALTERNATIVE INVESTMENTS

— ‘Low volatility strategies will, when effectively combined, prove a valuable diversifier of a traditional long-only portfolio’ Michael Goldman, Pioneer Alternative Investments

Investors are now better prepared to appreciate the advantages of a portfolio that mixes in alternative strategies such as hedge funds.
Three years of falling equity prices and the bounce during 2003 have dramatically strengthened the case for the inclusion of alternative investments within a traditional portfolio.
“If it’s not broken, don’t fix it.” This might describe the approach taken by traditional portfolio managers in the booming equity markets of the 1990s. But the markets did break, suffering substantial losses in the first three years of the new millennium. This period of sustained red ink caused many investors – institutional and retail – to reconsider their strategies and even to view, with some suspicion, the highly volatile recovery of 2003 when, for example, the S&P 500 Index gained 26.38 per cent.

— ‘Hedge fund indices serve as a benchmark for evaluation of individual hedge fund and actively managed FoFs performance’ Oliver Schupp, CSFB Tremont Index

Among the array of products that has sprouted from the fast-growing hedge fund universe is the investable index, which, with its specific criteria for fund selection, widens the asset allocation options for investors in alternative classes.
Strong growth within the hedge fund industry continues, with the number of hedge funds rising fivefold in the past decade to amount to more than 6000 today. Hedge fund assets are now at an estimated high of $700–750bn worldwide.
The bursting of the technology bubble in 2000 highlighted the limitations of long-only investing and increased the appetite for investments that generally exhibit low correlation to equities.
As a result, institutional investors, including pension funds and endowments, are showing a growing interest in exploring the role of hedge funds in their strategic asset allocation.

— ‘Using block trades means private individuals may benefit from the same market access as traders’ cherished institutional accounts’ Pierre Lequeux, ABN AMRO Asset Management Limited

Currency overlay techniques, once the province of pension funds and other institutions, are fast becoming available to HNWIs seeking diversification.
Currency management, to the uninitiated, is getting a fistful of dollars for a handful of euros to spend during a trip to New York, and using whichever booth at Paris Charles de Gaulle or Roma Leonardo da Vinci offers the best deal to make the trade. But to the sophisticated private investor, active currency management is an asset class in its own right. One, moreover, which not only may offer impressive returns but is also relatively liquid, reassuringly uncorrelated to the major equity and bond markets, and less market dependent than buy and hold strategies.

— ‘Bonds are bounded in a way that equities are not because they redeem at fixed price, or, in the event of default, subside to some lower value’ Tim Haywood, Julius Baer Investments Ltd

Despite the investment world’s ongoing bias in favour of equity-derived strategies, there are strong reasons for choosing fixed income hedge fund strategies instead. Here are five of the best such reasons.
All the pieces are in place today for explosive growth in fixed income hedge funds, yet this remains a minority strategy compared to, for example, equity-derived hedge fund strategies. Of the 585 funds listed in September 2003’s Eurohedge league tables, 325 are pure equity funds, yet just 83 are pure bond funds.
This partial sample illuminates the equity bias in the world of alternative investments and is surprising in view of the opportunities. Here are five reasons why investors should consider fixed income hedge fund strategies.