Beachhead Capital Management (“Beachhead”) have released a new report: Generation Two Liquid Alternatives: Built to Meet the Needs of Asset Allocators.
This report addresses two key questions for investors today: why were many investors disappointed with the first generation of liquid alternative mutual funds, and what better solutions are available going forward?
Liquid alternative products created in the wake of the financial crisis (“Generation One”) often had three issues: poor performance, high fees and/or highly unpredictable performance. With short track records, the funds too often were sold on unrealistic expectations and marketing hype. Diversification strategies that served institutional investors well broke down when translated to retail portfolios.
The next generation of products, Generation Two, should focus on what asset allocators need in their portfolios. Asset allocators need products that can (a) match or outperform long-term capital markets assumptions for hedge funds, (b) deliver consistent performance relative to the “bucket,” and (c) keep fees low and expenses low.
Andrew Beer, Managing Partner at Beachhead Capital Management, commented: “Early adopters of liquid alternative products tended to ‘chase the hot dot’ – a huge problem when yesterday’s winners might underperform tomorrow’s by 30% or more. Today, allocators understand that consistency and predictability over a market cycle are essential to reach long-term goals, and that low fees are the surest path to capital appreciation. The next generation of liquid alternatives, which we call Generation Two, will focus on outcomes and be built for the needs of allocators.“
The conclusion predicted that allocators will drive a resurgence of hedge fund replication – which offers a proven combination of performance, cost and consistent results, as well as being suited for the constraints of regulated mutual funds, UCITs funds and ETFs.
A full copy of the white paper can be downloaded at www.dynamicbeta.com/