Assets in alternatives globally stand at $866bn (e670bn) excluding private equity and property, up 39 per cent since January 2003, according to Dexia Asset Management. Europe is taking a bigger slice of the alternative pie, accounting for a quarter of all investment in the asset class, up from 10 per cent just four years ago.
Yet Naďm Abou Jaoudé, member of the executive committee and head of alternative investment at Dexia, said that money was not flowing into long-short strategies as before.
For the first time this approach represents less than 25 per cent of European alternative investment funds. In 2002 it represented 41 per cent.
Mr Jaoudé said funds earmarked for alternatives were going to fixed income and credit strategies, whose assets had doubled in the last year and to emerging market strategies, which have gathered $1bn in new assets.
The newly popular strategies are attracting investors seeking to diversify hedge fund investment and “capitalise on new market inefficiencies”, said Mr Jaoudé. “When everyone is using the same strategy, as in the case of long-short, the number of inefficiencies becomes limited,” he said. Strong recent returns were also cited as a key attraction.
Hedge fund researcher Edhec reported that emerging market strategies returned an impressive 6.60 per cent for the year to date, while fixed income arbitrage delivered 4.50 per cent.
Mr Jaoudé stressed that long-short was still a useful approach. “This is a cyclical development and it doesn’t signal the end of the road for long-short.” He added that long-short was ideal for investing in emerging markets debt. Its hedging technique, designed to shield investors from market dips, was perfect for dealing with high risk emerging market environments, he said.
Tony Morrongiello, chief executive of Alternative Asset Advisors (3A), also highlighted bonds and emerging markets as the new stars of the alternatives world, while playing down the relative lack of interest in long-short. “Long-short strategies have had a tough year because it’s been a difficult environment for them. But it’s been for exogenous reasons, we have seen it in the past, we will see it in the future, this is a normal state of affairs.”
Mr Morrongiello tipped distressed debt and emerging markets to continue to be top performers for some months.
One 3A fund of hedge funds, Altin, has achieved performance of 6.6 per cent during the year to October. It has an 11 per cent allocation to distressed debt and a 7 to 9 per cent allocation to emerging markets.
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