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Perspectives on alternative investments
In 2009, Mercer launched its global manager research boutique structure to increase the depth and breadth of our manager research, with an increased focus on alternative investments. The new boutique structure is designed to leverage our extensive research capabilities, allowing Mercer to provide a more focused, specialized research product to clients. As investors review the asset allocation structure of their funds, there is no doubt that alternative investments will play a role in future investment decisions. This presents both challenges and opportunities for investors. The variety of strategies within this broad "asset class" presents investors with differentiated return and risk characteristics. Many opportunities exist outside an investor's "home country" and could potentially offer greater rewards than domestically based strategies. However, more than ever, investors need to closely examine fund terms and conditions, liquidity constraints and a manager's back office operations. The level of due diligence required has indeed risen beyond just understanding the investment process. Given the upheaval in the markets, if an investor can take a long-term investment view, from chaos will come opportunity. We hope you find this edition of Perspectives on Alternative Investments informative and insightful, and we welcome your comments and suggestions for future topics. In this issue • The known’s and the unknowns - An examination of the hedge fund market Michael Lewis, CFA (Toronto)
Surveying preliminary hedge fund results through the end of 2009, we can't help but ask: Is the worst over? Even after surprising allegations of insider trading, the hedge fund industry has seemingly rebounded from the dire predictions of its demise just 12 short months ago. Most strategies, with the exception of those by dedicated short sellers, had positive results for the year. It was recently reported that assets in hedge funds are almost back to $2 trillion, the pre-Lehman bankruptcy peak. And our own client experience is that institutional investors are putting money to work in hedge funds again. • Infrastructure capital raising dries up - How can investors benefit? David Kaposi (Toronto)
Capital raising in the infrastructure sector continues to be extremely slow in 2009, and this is leading to mild shakeout in the industry. It is also creating opportunities for investors, as the remaining managers are more flexible on fee terms and, significantly, there are fewer capital-chasing deals. The reduced competition for deal could lead to 2009 and 2010 being strong vintage years for funds that are raised. • A Q&A with Jeff Gabrione, CIO, Mercer's Alternatives Alpha Boutique Chief Investment Officer, Mercer's Alternatives Alpha Boutiques • Strategy focus - Managed futures Benedict Yap (Singapore)
2008 saw global equity markets fall by at least 30 percent, with losses in the global hedge fund industry amounting to an estimated US$582 billion through performance and redemptions.1 One strategy had its day in the sun, however, returning double-digit gains for the year: managed futures (MF). Indeed, 2008 has been identified by some practitioners as being the best year for this strategy since 2003. But was the performance displayed by MF last year really that unexpected? Or has this strategy simply been misunderstood? • Hedge fund regulation Jeremy Spira (London)
Hedge funds are widely recognized as contributing to market liquidity, providing a diversified source of investment return (recent experience excepted) and, through their investments, contributing to shareholder activism. However, in the wake of the financial crisis of 2008, the extent to which these vehicles are currently regulated has been called into question, with a significant push by investor champions and market watchdogs for tighter controls.
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