Liquid Alternatives: “Create Interesting Revenue Streams Without Locking Up Money For Ten Years”
But manager selection is key, says Patrick Ghali, co-founder of Sussex Partners.
Though many liquid alternative strategies have disappointed in recent times, investors can nevertheless create “interesting revenue streams” by combining various strategies. This they can achieve without locking their money up for up to 10 years, says Patrick Ghali, co-founder at hedge fund advisory Sussex Partners.
Patrick Ghali recommends strategies to use
Ghali suggests that strategies such as alternative risk premia, relative value volatility, market neutral, and macro could be used advantageously; however, he emphasizes that investors need the right managers to implement these strategies. (City Wire Selector)
“A lot of investors are worried about where market valuations are, and can you create a liquid alternatives portfolio that can provide you with a steady return instead of having to go to the illiquid side of the equation. What we found is you can now do that,” says Ghali.
“You now find there are managers who are very good and have a Ucits product that’s bigger than their offshore product, for example.”
Managers are getting better at liquid alt investing
Hedge funds, on average, outperformed Alt Ucits strategies in 2020. However, Ghali sounds a cautionary note on longer lock-up strategies that suffer from risks such as illiquidity, liquidity mismatch, and valuations.
‘What’s nice about liquid alternatives is there is an objective price, there is no question about the value. You get a little bit more volatility but with the illiquid stuff you feel like there is no volatility but in reality, you’re exposed to market gap risk,’ Ghali told City Wire Selector.
Further, Ghali feels that manager quality in liquid alternatives is improving, and this could work in favor of investors.
Investing in alternatives
According to Ghali, investors would do well to create alt “buckets” comprising a mix of strategies, time frames, and diverse geographies.
Ghali said there were now skillful managers available to implement strategies such as market-neutral, macro including Asian macro managers, and for trading treasuries and gold in a Ucits format.
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