Multi-manager liquid alternative funds can play a critical role in enhancing portfolio risk-adjusted return potential by giving investors access to diverse hedge fund strategies, such as:
• Long/short equity strategies focus on long and short investments in equity securities that are deemed to be under- or overvalued. The strategy has the ability to capitalise on ‘winners’ and ‘losers’, and to minimise equity market volatility.
• Event-driven strategies focus on the opportunities created by industry-changing events and corporate catalysts. Corporate actions are creating interesting and differentiated long and short opportunities for event-oriented strategies, which are catalyst-driven and can offer reduced reliance on broader market moves.
• Relative value strategies seek to profit by simultaneously buying and selling related securities to benefit from pricing differences. This strategy seeks to neutralise market exposure and isolate alpha generation based on price movements between related securities.
• Macro/opportunistic strategies invest with a flexible approach in a variety of securities across countries, markets, sectors and asset classes driven largely by macroeconomic views. This focus allows for lower correlation to other hedge fund strategies.
• Credit strategies focus on debt and equity securities of firms that are financially stressed or distressed and offer investors a differentiated source of credit exposure.
In light of an increasingly volatile and unpredictable market backdrop, and with the risk-adjusted returns for holding long-only balanced market exposure declining relentlessly, more investors are expected to start taking advantage of the innovation in liquid alternatives strategies.
Karim Leguel is EMEA head of hedge fund solutions at JPMorgan Asset Management
