While there are some nascent signs of recovery, and the markets like to climb the proverbial wall of worry, every day seems to bring more news of headwinds to the economy. Some of the headwinds are current events like debt problems in Dubai followed by financial problems within the EU. Some are longer term changes in attitude such as the well documented increase in savings by consumers which is likely to last longer than the immediate economic downturn. While this is healthy longer term, it does not help support the near term recovery. Overall, rather than solving for the debt overhang, the government seems to be adding to it.
These factors all fit within the typical scenario for credit induced downturns which tend to be much more difficult to recover from than cyclical downturns. This “new normal” environment will require management to follow careful and thoughtful strategies, and executive crisply and flawlessly. Executives will need to be on the top of their game. However, those that differentiate themselves from the pack could enjoy excellent success.
Dorothy, we are not yet out of the poppy fields. Let it snow, let it snow, let it snow!
December 17th, 2009
In the post-financial crisis world, there are a lot of questions swirling around regarding the demand for hedge funds and what their proper allocation should/will be within investment portfolios. Will the prior trends toward wider acceptance resume, or will they be curtailed by residual fears of loss and mismanagement?
I believe that the hedge fund world will be broken down much more specifically by strategy. It has been recognized by many for some time that there has been an artificial separation between “traditional” and “alternative” investment strategies. The alternative bucket has encompassed all types of disparate investment strategies. Going forward, analysts, investors, and plan sponsors should and will continue to incorporate a variety of strategies into portfolio structures based on the risk and return characteristics of each strategy rather than an artificial label.
The more important separation, which will become more prominent, will be between alpha and beta, where strategies that generate true alpha will continue to be rewarded, while more beta oriented strategies will be marginalized to compete with the growing array of passive alternatives. In addition, within the hedge fund arena, greater scrutiny will be placed on transparency and the need for managers to operate like their traditional counterparts, increasing their need for operational infrastructure, compliance support, and other mainstream business functions. As these resources are built, hedge funds will become more and more mainstream investment alternatives, led by those that are most easily understood and transparent. By strategy, long/short equity appears to be a prime candidate; indeed it seems that such strategies are already growing institutionally.
December 10th, 2009
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