Trends Watch: November 23, 2016
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 Jim Liu, Portfolio Manager, Zadig Capital.
What is your outlook for the alternative investment industry?
My hope is that current movement of institutional investors out of the hedge fund space means that the remaining capital will be more discerning about performance and transparency. Unfortunately, the current trend makes it harder for managers of all kinds to build or maintain operational scale, and we've now seen plenty of news about storied firms shuttering their doors. However, in the long run (and particularly if you're an optimist), a cleansing of the industry should push out the weaker players, right-size fee structures and improve the overall reputation of the business - these would all be positives for the future of the industry.
What is your outlook for the economy?
The U.S. economy appears to be on the mend across a number of labor, production, and consumption metrics. The global economy also appears superficially to be healthy, but we're concerned about hidden risks where regional imbalances have sprung up. Given that landscape, we run an approximately market-neutral portfolio, so we're positioned to be insulated from general shocks, while at the same time taking on deliberate short exposure to certain regional economic risks.
What keeps you up at night?
As a fundamental value-based investor, collapsing securities correlations are scary. We've already seen several periods of risk-on/risk-off trading over the last two years where various sectors and asset classes indiscriminately trade together (both up and down) without a clearly related causal factor. When assets lose their valuation anchors for sustained periods of time, it is more difficult for us to generate alpha in the short run, though distortions can set up better long-run opportunities so long as investors are willing to remain patient.