liquid alternatives | THE DEBATE
Liquid alternatives: strategic solutions for uncertain times
With low interest rates and concerns about the global outlook, demand for liquid alternatives continues to rise as do the number of funds launched in the sector. Seven panelists shared their views on how liquid alternatives have evolved from a new player to a mainstay in their toolkits. If there was one point that all our investment experts shared, it was that although it’s still early days for this growing asset class, its attractiveness is only growing.
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How have liquid alternatives matured since rising to popularity after the 2008 financial crisis, and is this set to continue? Hugh Prendergast The outlook for liquid alternatives is that usage needs to grow. The forecast for beta returns are increasingly challenging for investors to meet some of their long-term objectives. For example, if you look at some large pension plans’ returns year to date they need to replace some of the shortfall from bond and equity returns enjoyed during a disinflationary trend and find other sources of return. As a result, the active part of the asset management industry is increasingly focusing on two things. One is outcome and outcomeoriented strategies aligning the objectives of how money is managed with the ultimate needs of the clients, rather than just relative returns to the market. Secondly, income and income replacement in many cases from new areas that were not necessarily traditionally thought of as income sources.
We see a great deal of investment flow going into liquid alternatives, and it is likely to be sustained as a result of the very low yield and low return environment that we’re facing.
Hans Abate Liquid alternatives are becoming an exciting tool that we have now as asset managers and with their recent and rapid growth, it resembles the early stages of when ETFs were introduced. It was something liquid, representative, it would add diversification and would help us on risk management. Liquid alternatives are improving the perception of hedge funds after the problems we had back in 2008. Indeed because now they are liquid, regulated and transparent they can be used easily and widely in most kinds of portfolios as building blocks. The beta years are probably going to be a diminishing factor ahead and we need to compensate returns in a low-yield environment. At best, we’re probably going to stick around here for a little while longer. So we need to look back on