Trends Watch: April 20, 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 Wayne Yu, Founder, BCK Capital Management.

What is your outlook for the hedge fund industry?

The last several years have been a challenging period for the hedge fund industry. Investors have been disappointed with lackluster performance and high fees and as a result there has been a shift away from active managers towards low cost indices.  Nevertheless, we remain optimistic about the long-term prospects for the industry.  The current equity bull market won’t last forever and there will always be a place in investors’ portfolios for funds that can deliver consistent performance that is not correlated with traditional assets.  The fact that investors are demanding better alignment of interest on fees should actually benefit the industry in the long run.

What is your outlook for the economy?

One of our core principles is to focus on areas where we have a very well defined edge based on our expertise in special situations (litigation, mergers, spinoffs, etc.). At the same time, we recognize areas where we do not have any particular edge and we carefully limit these exposures.  We do not believe we have any particular expertise in predicting GDP growth, the price of oil, etc. and we seek to hedge out such factors in our trading.

What is your outlook for corporate activity?

We expect many of the factors that led to strong deal volume in 2016 to continue in 2017.  Opportunities for organic growth remain limited, leading companies to consider significant corporate actions to enhance shareholder value.  While the U.S. Federal Reserve has raised interest rates in the U.S. slightly, the European and Japanese central banks are still engaged in quantitative easing, and interest rates remain well below historic averages.  Overall corporate borrowing costs remain very low, especially for investment-grade companies.  We also expect that activist investors will continue to pressure boards to consider corporate activity to enhance shareholder value.