Mostly markets run smoothly: your employees do their jobs, your returns are where they should be, and you stay ahead of the competition. But every once in a while, something changes just enough so that the things you’ve always done are no longer working. Investments underperform their benchmarks, the market`s pulse becomes harder to read and your time is eaten up by things which detract from improvement potential. How do you regain vision, belief and direction when you feel like you’re no longer in control?
Or perhaps things are going well. Your task list is growing quickly, and with that growth come challenges. You are faced with choices and opportunities. How can I stay differentiated and be better than the rest? Expand your product offering? Protect against a market reversal? These are the decisions that will determine the long-term success of your career. How do you make sure the path you’re about to take is the right one? It’s time to find a partner that will help you with new but proven ideas.
Fixed Income Replacements
For many years, bonds provided investors with solid returns from both competitive yields and capital gains. But with interest rates still near historic lows, many bond investors are starting to look elsewhere to generate better yields. And while there is no perfect substitute for bonds, there are several other enticing alternatives that bond investors may want to sample that can provide them with low correlation to stocks, low to mid single-digit returns and low overall volatility. They can even find some shelter from interest rate risk.
The big drop in world markets after the United Kingdom’s shocking vote to leave the European Union is only the latest reminder that investors need a variety of eggs in their portfolio baskets. Large caps, small caps, Asian stocks, European stocks, high-yield bonds, oil, copper—practically everything took a dive. The same happened in 2008. Not only did large-capitalization U.S. stocks lose 37% of their value, but real estate, commodities and foreign stocks tanked as well. Real diversification demands assets that don’t move up and down in tandem.
You can substitute alternative investments for some of your bond holdings and have the structured in a way to target the same level of risk/volatility which you achieved via your fixed income portfolio. The low correlation of liquid alternative investment strategies allows us to achieve such results even in concentrated multi manager portfolios.
An equity replacement investment strategy attempts to mimic the returns of a certain asset or group of assets by using a combination of different derivatives rather than buying the individual shares in the market. Traders will attempt to profit from the leverage found in options and futures because they can provide the same type of exposure to the underlying asset for a lower cost than if the trader were to buy the underlying assets outright. This way one can also overcome the difficulty of achieving the target risk and target return levels investors usually associate with equity investments. We have often surprised investors when analysis revealed that the equity risk they accepted only lead to a fraction of the return they had considered to be a target in exchange for that, and that well structured alternative portfolios can achieve much better returns for the risk accepted.
Liquid Alternative Investment Management has experienced a wide variety of approaches over the last 20 years, and we believe that different client preferences require different solutions. Eventually even single manager investors end up with a multi manager portfolio, and only if the concept differs from traditional fund of hedge funds can the outcome be expected to be fundamentally different. This includes access to hard closed managers, concentration of exposure, notional funding, allocations to emerging as well as established managers as well as staying away from overly cyclical strategies due to the timing requirements they introduce to the portfolio, which are often impossible to manage over the long term.
A capital guarantee fund is an investment in which the investor's principal is shielded from losses. With a capital guarantee fund, any losses experienced by the underlying alternative investments are absorbed by fixed income investments. Generally, a capital guarantee fund will require that an investor remain invested for a certain number of years, making these investments best for investors with a long-term investment goal. Usually such funds are structured by investment banks with the use of options, which lead to sub-optimal upside potential and high structuring costs, as well as counterparty risks. With liduid alternative investments, such structures can be enhanced, made more liquid, target higher returns then their option based counterparts and benefit from embedded cash efficiency. Our founders have launched dozens of such structures throughout their careers with volumes exceeding USD 2bln per product launch.
Our style based process is the unique mechanism that allows us to create a bespoke investment for each of our clients so that they in turn have a differentiated offering that feels exactly right for them. The team is able to provide a range of asset consulting and implemented investment services ranging from being part of an investment committee to outsourcing the entire investment process. At the portfolio level we have always worked with large investors to customise exposures and to invest via separate accounts with underlying managers, and also at the fund or manager level. Here we work with managers to carve out, for example, a concentrated portfolio of their high-conviction ideas or to co-invest in a new idea. In the search for yield outside stocks, we have all had to re-group and dig deeper to find value in this zero rate environment. One of the side effects of the post-crisis drive for optimal portfolio transparency, liquidity and lower costs has been a two-fold rise in hedge fund assets on managed account platforms.
The systematic investing style refers to an investing system which is developed based on models or rules-based algorithms. This investing style is also referred to as Quantitative Investing or Model-based Investing due to the use of quantitative analysis and models, which can be complex or simple. Systematic Investing, using quantitative models, continues to grow as it addresses key drawbacks of active investing - behavioral biases. Behavioral economics continues to provide growing evidence of the benefits of model-driven investing. Systematic investing has gained greater traction since the 2007-2008 financial crisis as active management has generally lagged in performance compared to key benchmark indexes. We have been involved in systematic investing for nearly 20 years, and have worked for and with firms whose origins date back to the inception of systematic investing in the 70s.
One of the most talked about trends in the asset management business since the financial crisis has been the spectacular rise of alternative Ucits funds. Newcits constitute an improvement in the handling of alternative investments due to their distributability, their regulatory oversight and pre-defined investment restrictions. At the same time they pose a challenge for analysts and selection specialists in terms of identifying, analysing and weighing the inherent risks, benefits or disadvantages vs. non-regulated counterparts. We act as a resource for investors who want to get the best out of their UCITS investments and our principals were involved in the first Newcits Multi Manager product in the industry during 2008.
A white label product is manufactured by one company and packaged and sold by other companies under various brand names. The end product appears as though it has been manufactured by the distributor of the product, for example a wealth management business. The benefit for the manufacturer and the wealth manager is that the manufacturer can concentrate on structuring and managing the product, and the wealth manager can invest in marketing and selling the product. Our principals have been involved in dozens of white label product launches for a global clientbase, and we therefore understand the ins and outs of the process and value chain, and assist our clients in the product definition, its market positioning, the writing of a sales story and the incentive integration to enhance sales.
Other Liquid Alternative Services
Green Shoots has been offering a wide range of services since inception, ranging from communications, marketing design and brand creation via Green Shoots Media, to Operational Due Diligence via Green Shoots Squared, and product development, structuring, design and seeding via its existing business entities. We are passionate about the optionality the industry has to offer and the differentiation and protection it can provide. It would be a pleasure to learn more about your own targets, visions, challenges and ambitions in order to see if we can assist you as well.