Liquid Alternatives Gather Steam

Terry Flanagan

The convergence of alternative investment strategies and institutional fund structures is likely to accelerate as investors favor more liquidity than offered by the traditional hedge fund.

“The wrapping of hedge fund strategies into ’40 Act wrappers holds great appeal for high net worth and retail investors,” said Christopher Kreicker, senior managing director at Wilmington Trust. “We have seen structures like this capture significant AUM versus the traditional limited partnership structure.”

Already in 2014, Invesco has launched six new liquid alternative open-end mutual funds, and private equity giant The Carlyle Group is reportedly launching two liquid alternatives mutual funds, one a long/short commodities fund and the other a balanced risk global allocation fund similar to risk parity.

Invesco said that its liquid alternative funds will expand the firm’s range of alternative offerings covering a variety of investing styles.

“These new funds represent the next phase in our rich history of alternative asset management, covering retail investors, pension plans, sovereign wealth funds and institutions,” said Gary Wendler, head of product development & investment measurement/risk. “Our alternative product suite is managed by seven seasoned teams encompassing more than 200 investment professionals across North America, Europe and Asia-Pacific.”

Westchester Capital Management has announced the launch of the WCM Alternatives: Event-Driven Fund (WCEIX), a multi-strategy, absolute return mutual fund designed to profit from discrete events, including mergers, acquisitions, asset sales or divestitures, restructurings, re-financings, recapitalizations, reorganizations or other special situations.

The strategy focuses on generating non-correlated returns and has the flexibility to address shifting market landscapes. The firm, a pioneer in liquid alternative mutual funds, is strategically expanding its lineup of alternative investment offerings.

“The Fund follows a proven multi-event strategy that WCM has been managing for the past five years,” said Michael Shannon, co-portfolio manager and managing member of WCM. “In today’s challenging environment, the Fund seeks to help investors maximize their portfolio over time by lowering its risk profile while also providing the potential for attractive inflation-adjusted returns.”

Demand for liquid alternatives has increased due to an increased appetite for non-traditional strategies among both institutional and retail segments.

“We have been seeing significant rotation into more liquid strategies,” said Kreicker. “Since 2008, clients have developed an acute sense of what they’re not comfortable with, which is leading them to more liquid structures. In the LP space, some providers are more willing to provide more liquid offerings than they were six years ago.”

Hedge funds are also being challenged to deliver returns in the more constrained economic environment that has developed post-2008. QFS Asset Management, for example, announced that it would hand back nearly $1.0 billion in client assets. “After careful consideration, QFS has concluded that the current market environment does not offer adequate risk adjusted opportunities for fundamentally-driven quant macro strategies, and that is unlikely to change for the foreseeable future,” said Karlheinz Muhr, chairman and CEO of QFS. “In the absence of opportunities, QFS has determined that it is in the best interests of its investors to return all capital.”

QFS will continue its research efforts in the global macro and currency markets and seek to develop new and innovative sources of returns, the company said. Longer term, management remains confident that economic realities ultimately will force a normalization of asset prices, which will allow fundamentally-driven strategies to extract commensurate risk adjusted returns.

QFS expects to complete its disbursement of client funds by the end of January.

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