Unknown Territory
“The big demand for these strategies is just due to the good performance," said Marcus Storr, head of hedge-fund investing at Bad Homburg, Germany-based Feri Trust GmbH. “If there’s a liquidity crunch for some reason, we do not know how these strategies would react.”
To address the problem, assets managers are capping the size of their funds. AHL Evolution stopped accepting new money last year, while Florin Court reduced the amount it can manage to $2 billion from $3 billion after changing its strategy. GAM Systematic’s new fund will restrict the money it overseas for clients to just $500 million.
This obscure corner of the hedge-fund market may become less exotic as more firms are lured by the attractive returns. Funds may come under pressure to seek out new, untapped markets that offer more potential, such as cryptocurrencies. Florin Court is one of the few hedge funds to trade bitcoins.
At the same time, the limited capacity in many exotic markets, along with the relatively high trading costs and the need for extensive research, may deter some firms.
“While the best way to trade futures in traditional funds is little and often, that’s possibly the worst way to trade in alternative markets," said Chris Reeve, a senior product manager at Aspect Capital. “The devil here is in the detail. The principles of trend-following are easy, but deploying the strategy in these markets is a challenge."
This article was provided by Bloomberg News.