Hedge fund diversity grows
25 November 2015 London
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The virtue of hedge fund diversification has been highlighted in a new report by the Alternative Investment Management Associations (AIMA) and the Chartered Alternative Investment Analyst (CAIA) Association.
The Portfolio Transformers: Examining the Role of Hedge Funds as Substitutes and Diversifiers in an Investor Portfolio report outlines the specific qualities that different types of hedge funds offer to institutional investors, the main source of capital managed by the hedge fund industry today.
The report鈥檚 finding are based on a 鈥榗luster鈥� analysis of the risk and return characteristics of the main hedge fund investment strategies.
鈥淪ome of the most experienced investors in alternative investments no longer see hedge funds as a standalone allocation but rather as substitutes for investments in equities and bonds or as investments that bring particular diversification benefits,鈥� according to AIMA.
The new analysis identifies 鈥榮ubstitute鈥� strategies that could replace a long-only allocation to stocks, bonds and other asset classes as long/short equity, long/short credit, event-driven, fixed income arbitrage, convertible arbitrage and emerging markets.
鈥楧iversifier鈥� strategies鈥攖hose that are particularly uncorrelated to the underlying asset class鈥攊nclude global macro, managed futures and equity market-neutral, according to the research.
Jack Inglis, CEO of AIMA, said: 鈥淭his new paper underlines the heterogeneity of hedge funds today. For every type of fund, there are just as many solutions to investors鈥� particular requirements.鈥�
鈥淭he paper also makes it clear that the old distinctions that have underpinned portfolio construction for the last 25 years are disappearing."
鈥淧ensions, endowments, foundations, insurers and family offices are different entities, with different challenges and divergent investment aims. But what many of them have in common is a wish to see hedge funds as another method of investing in equities, bonds and other asset classes, rather than as a separate asset class.鈥�
The Portfolio Transformers: Examining the Role of Hedge Funds as Substitutes and Diversifiers in an Investor Portfolio report outlines the specific qualities that different types of hedge funds offer to institutional investors, the main source of capital managed by the hedge fund industry today.
The report鈥檚 finding are based on a 鈥榗luster鈥� analysis of the risk and return characteristics of the main hedge fund investment strategies.
鈥淪ome of the most experienced investors in alternative investments no longer see hedge funds as a standalone allocation but rather as substitutes for investments in equities and bonds or as investments that bring particular diversification benefits,鈥� according to AIMA.
The new analysis identifies 鈥榮ubstitute鈥� strategies that could replace a long-only allocation to stocks, bonds and other asset classes as long/short equity, long/short credit, event-driven, fixed income arbitrage, convertible arbitrage and emerging markets.
鈥楧iversifier鈥� strategies鈥攖hose that are particularly uncorrelated to the underlying asset class鈥攊nclude global macro, managed futures and equity market-neutral, according to the research.
Jack Inglis, CEO of AIMA, said: 鈥淭his new paper underlines the heterogeneity of hedge funds today. For every type of fund, there are just as many solutions to investors鈥� particular requirements.鈥�
鈥淭he paper also makes it clear that the old distinctions that have underpinned portfolio construction for the last 25 years are disappearing."
鈥淧ensions, endowments, foundations, insurers and family offices are different entities, with different challenges and divergent investment aims. But what many of them have in common is a wish to see hedge funds as another method of investing in equities, bonds and other asset classes, rather than as a separate asset class.鈥�
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