Analysis of Alternative Investment Industry: March 6, 2015

 We share a bi-weekly analysis of the latest news in alternative investments.

Global equities maintained strong momentum as the MSCI World Index reached its all-time high in February. Hedge funds, on the other hand, underperformed for the past several years compared to equities, disappointing many investors. No wonder the media is keen on hastily concluding that hedge funds are not worth investing in, especially after Calpers slammed its door on them.

What is intriguing, however, is that institutional investors are actually starting to increase their allocations to hedge fundsDeutsche Bank recently published a survey indicating that hedge fund assets may even top $3 trillion this year. As ValueWalk reports, institutional investors are becoming cautious of market volatility, and hedge funds are becoming a major way to hedge against the downside risk.

Despite underperformance in recent years, hedge funds have strong potential to generate outsized returns as well as mitigate risk. The anticipated volatility and need for good managers must be understood in conjunction with the less than stellar performance. Investors should not passively invest in hedge funds and believe that they will be fine during the stormy environment. Investors must actively seek out the best managers that can meet their needs and continuously improve their portfolios over time.

 

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SEE RELATED: Interview with Neal Berger, President of Eagle’s View Capital Management

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