Keith Black, Managing Director of Exams and Curriculum for the CAIA Association, gives his take on portfolio-construction with liquid alts in this video, filmed onsite at the Investing in Liquid Alternatives Conference in New York, and the third of a three-part series. Instead of looking at a strategy’s five-year trailing track record, investors should look at previous crises – 1998, 2001, and 2008 – to see how their asset-allocation strategy is likely to hold up. He says simply reallocating 10% of a portfolio from long-only equity to long/short equity, and another 20% from long-only bonds to managed futures, would greatly improve the robustness of a “60/40” portfolio.
In the second half of the video, Mr. Black examines the phenomenon of hedge-fund managers crossing over the mutual funds, and mutual-fund managers making the jump to liquid alts. In his view, hedge-fund managers are likely to perform better, due to their experience with shorting and using alternative strategies, whereas long-only active managers who’ve never shorted before are a bit of a wild card. At the same time, hedge-fund managers have little experience raising money within the mutual-fund world, and they lack expertise in the compliance department, too. Ideally, hedge funds and mutual-fund companies should work together, doing what they do best, to produce better overall products.
Click here for Part I or Part II of this video series. For a list of all the exclusive DailyAlts videos, click here.