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‘Divergent’ or ‘convex’ hedge fund strategy indices posted average returns of nearly 10% through the first three quarters of 2022. Even small allocations to these strategies have provided investors with material improvements to their overall risk-adjusted returns and drawdown profiles – plus capital that can be re-deployed into traditional markets at attractive entry points. Is it time for investors to re-evaluate their hedge fund portfolios, or indeed make the move to create one?
Read more: Clarifying the Case for ‘Convex’ or ‘Divergent’ Hedge Fund Strategies
BlackRock, Ontario Teachers’ Pension Plan and Sequoia Capital are among the named investors of FTX — the Bahamas-based cryptocurrency exchange whose collapse has made headlines across the financial press. The incident is a timely reminder of the importance of operational due diligence (“ODD”) when making investment decisions. Robust ODD assessments will likely reveal issues such as corporate conflicts of interest, weak governance, senior leadership shortcomings and inadequate cash management controls.
Read more: FTX Debacle Highlights Key Points for Investor Due Diligence
Investors have appeared satisfied, so far, with the resilience shown by their infrastructure portfolios through the turmoil of 2022. The combination of inflation sensitivity, low real interest rates and robust buyer appetite have supported a sense of continued momentum in the sector. Yet mounting concerns are prompting a re-evaluation of exposures and expectations. What should investors watch out for in the current climate?
A quick poll of UK Asset Owners on October 18-19 2022 suggests a significant change in expectations for asset class exposures over the next year, versus a survey conducted one month prior. A quarter of investor respondents are now intending to decrease exposure to private market strategies over the next 18 months, including 80% of Corporate Pension Funds.
Read more: UK Investor Snap Poll Reveals Shift in Allocation Intentions
Investors are placing ever-greater focus on the carbon intensity of their investments, with equity portfolios often first in line for implementation. Yet, while carbon commitments can represent a positive step within a broader ESG agenda, applying reductions in an overly simplistic way can lead to problematic consequences—undermining both investment-related goals and environmental ones.
Read more: Three Carbon-cutting Pitfalls – and How to Avoid Them
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