The tailwinds for traditional assets have created headwinds for asset managers and advisors who specialize in alternative investments, but better days may be ahead.
At the 8th Annual Inside Alternatives conference in Denver last week, presenters and panelists discussed the challenges that a bull market places on the marketing and implementation of alternative strategies.
“There’s a lot of complacency out there,” said Cleo Chang, senior vice president and head of alternatives for American Century, at a panel on alternative income products on October 23.
A recent analysis by Natixis Global Asset Management found that advisors had reduced their allocations to alternatives from an average of 7.5 percent to an average of 5.5 percent between June 30, 2016, and June 30, 2017.
Even as conference panelists lamented the difficulty in explaining the benefits of alternatives, which can offer investors non-correlated streams of returns that can diversify their portfolios, U.S. stock indexes notched new record highs. The surge in equities has been particularly difficult for managed futures and multi-alternative managers whose products tend to underperform during rising markets, but outperform during sinking markets.
“It’s been an awful, terrible period for our asset class, which is flat and boring,” said Dr. Rufus Rankin, director of research of Equinox Institutional Asset Management, at a discussion on managed futures. “Yet while we’ve been boring and frustrated, we’ve also been preserving capital and providing a return stream independent from anything else your clients are invested in.”
Many of the presenters blamed monetary policy for the woes of alternative strategies, arguing that central bank intervention has muted volatility and artificially inflated asset prices.
“The Fed went into a process of quantitative easing and became the single greatest issuer of mortgages,” said former hedge fund executive and ex-White House communications director Anthony Scaramucci during his keynote address. “All of this has an artificial effect on the markets … we’re now entering the ninth year of the bull market, and it doesn’t seem to be abating any time soon.”
Other presenters said that global growth is slowing to a halt. In her keynote speech, Zambian-born economist and Mildstorm founder Dambisa Moyo said that most economic forecasts predict lower levels of GDP growth, driven by demographic, political and financial factors.
“In the World Economic Outlook that the International Monetary Fund puts forward, they’ve explained that we will never again see the levels of economic growth that we’ve seen for the past 50 years,” said Moyo. “More generally, developed markets are struggling at creating growth without relying on low interest rates.”