Outlook for the Alternative Investment Industry for 2016
Following one of the toughest years on record for the hedge fund industry, 2016 is expected to be a period of “change” as allocators seek mean-reversion strategies for the first time in recent memory due to heightened market volatility. Additionally, the majority of managers are anticipated to continue facing challenges raising assets, especially as institutional investors, pensions in particular, are consolidating their portfolios. At this month’s EisnerAmper monthly breakfast series solely for fund managers and investors, a trio of industry veterans shared their predictions for alternative investments this year, addressing strategies slated to outperform and underperform, which managers are expected to raise capital, macro-economic concerns, and finally, their outlook on fees and liquidity worries.
- Mean-reversion strategies, quantitative hedge funds, global macro offerings and CTAs are expected to outperform due to increased market volatility.
- M&A strategies are also expected to outperform, at least for the short-term, due to an overall increase in activity in 2015.
- Japan is expected to be the best-performing equity market as its government is planning a record spending spree to boost economic growth.
- Alternatively, emerging markets will show mixed performance, contingent upon each country. Specifically with China’s current situation, managers who invest in that country may get hurt.
- And finally, longer-lock credit and distressed offerings might struggle since the pool of dollars pursuing those opportunity sets will be too big.
Fundraising: Allocators eye mid-sized managers.
- Allocators are expected to pay more attention to both mid-sized and up-and-coming managers since the largest managers are all crowded in the same trades and hence don’t have a differentiated ability to be nimble and generate alpha.
- The “smart” allocators will avoid the temptation to go into name-brand managers that are all in the same positions.
- The hedge fund industry is anticipating interest rate hikes and how that will impact performance.
- China’s slowdown has also been a cause for concern amongst investors and managers alike.
- Despite constant pressure from investors for managers to reduce their fees, the best-performing funds won’t drop them.
- Although many large managers are subject to investors’ Most Favored Nation clauses which deter them from lowering their fees, they will find ways to circumvent that if they create different structures for allocators with reduced fees such as separately managed accounts.
- Liquidity is expected to be a big problem since there is less of it than there was in 2008.
EisnerAmper would like to thank the panelists for their time and insights:
- Robert Discolo, Executive Vice President, Permal Group
- Danielle Brown, Senior Vice President, Dyal Capital Partners
- Michael Beattie, Chief Investment Officer, Tradex Global Advisors