Trends Watch: February 9, 2017

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies Snyderman. 

This week, Elana talks to Alexis Hombrecher, Co-Founding Partner and Portfolio Manager of WHARD Stewart.

What is your outlook for the alternative investment industry?

We feel differentiation between average managers and good managers will continue to define this industry.  As an example, large institutional investors keep pushing for fee compression, often overlooking the better managers in the process, as their main focus is up-front costs saving.  This will not continue forever.  The manager that has lower fees but doesn’t perform will soon disappear, leaving only the successful managers and the unproven newcomers (some of which may prove themselves in the future, some of which may not). This will ultimately drive the success of this industry.

What is your outlook for your strategy: EM macro?

We see the opportunity set growing in the emerging markets macro space as correlations between G4 markets and EM have drastically decreased since the beginning of 2016.  This has led to relative value opportunities returning to this space.  After the taper tantrum in May 2013, correlations, especially in rates markets, were very elevated amongst EM  and between G4 markets and EM.  Effectively, the U.S. rates market was driving most EM rates markets.  This is no longer the case, especially as monetary policy in EM countries is diverging from G4 monetary policy.  We believe this trend will continue over the next 12 months providing opportunities to generate alpha.

What keeps you up at night?

We strongly believe that the key for an opportunity rich environment in our space is low correlations in rates markets amongst EM countries and between G4 and EM. Higher correlations, in our view, implies more concentrated opportunities (read less opportunities).  We much prefer lower correlations and hence monitor these metrics closely.  Moves back to post taper tantrum levels in correlations would make us sleep less well.