Beachhead Capital Management (“Beachhead”), an alternative investment manager, announced the release of a new report: Rethinking Equity Long/Short: How to Solve Poor Performance, Excessive Fees and Blow Up Risk.
This report breaks down the issues with how retail investors added equity long/short strategies to their portfolios post-crisis. In particular, the report examines the difficulty of picking winners in the space, and highlights that individual funds are far riskier than most allocators realize. These issues, combined with a tendency of retail investors to select a single fund per asset allocation bucket, meant that investors were overexposed to highly-risky individual funds.
Instead, allocators need alternative 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 and expenses low. Replication is now considered by many sophisticated investors as a proven strategy that is less risky than individual funds. Case in point: Beachhead’s ETF-only replication-based strategy (available only in managed accounts and via signal delivery) has outperformed 80-90% of equity long/short funds over the past five years with much lower drawdowns – demonstrating that consistent outperformance can lead to top quartile performance over time.
Andrew Beer, Managing Partner at Beachhead Capital Management, commented: “The equity long/short space is ready for a new generation of low cost, sector-like products that can deliver strong performance with low fees and less risk than individual funds. As with the broader active vs. passive debate, allocators realize that yesterday’s stars are just as likely to be tomorrow’s dogs. Hence, diversified exposure to a sector is a better way to meet long term objectives and manage client expectations.”
A full copy of the white paper can be downloaded at http://dynamicbeta.com/.