Investors’ reactions to rising interest rates have also helped buoy Murphy’s strategy by creating buying opportunities. Many retail investors liquidated any position that had interest rate duration, creating wide discounts in some closed-end funds.
Rising rates and fiscal stimulus have also raised the specter of another investing bogeyman: inflation.
“We’ve had inflationary head fakes in the recent past,” said Jacob. “People thought there would be inflation when quantitative easing started, but it didn’t occur. Another round thought inflation would jump right after the U.S. election and when the Trump policies were implemented, but right now there isn’t inflation priced into the yield curve.
“A multi-asset portfolio is meant to protect you from all of these issues, especially real assets and companies with pricing power. Those are good factors to own in some kind of disruption.”
Lazard’s real assets strategy is ideally intended as a liquid complement to other alternative allocations, creating a differentiated return stream that should benefit from inflation and can rebalance to smooth out the impacts of volatility.
With OMOIX, on the other hand, Vivaldi targets strategies that benefit from increased volatility by finding arbitrage opportunities. The back-and-forth nature of the rising rate environment also helps fuel Vivaldi’s strategies, said Murphy.
“It’s been an eventful first half,” he said. “We’ve increased our allocation to our relative value and our merger arbitrage book. The merger arbitrage portfolio has benefited from what seemed to be a sticky backup in interest rates; we’ve had these backups in rates a couple of times, but they haven’t really persisted for more than a few weeks or months.”