A recent London seminar hosted by SEB Enskilda and Alvine Capital focused on asset allocation. Leading industry participants took part in a dynamic two-hour event bringing to the fore some of today’s most topical issues.
To summarise the seminar:
• On average, most hedge funds do not hedge an institutional portfolio
• Hedge funds can add value but strategy selection and manager selection is key
• CTAs, equity market neutral and global macro funds are often best placed to diversify a balanced portfolio
Thomas Thygesen, Head of SEB’s Cross Asset Research team, kicked off the session by warning investors that traditional asset allocation tools are not working in the current environment.
Investors who refused to acknowledge this face being locked into lowreturn or highly-volatile investments – or indeed both – for some time to come. A solution is to selectively add alternatives, said Thygesen.
Jakob Lage Hansen, Investment Strategist at SEB X-asset, continued with conclusions from SEB cross asset’s hedge fund report. He said:
“The key is to be selective, because on average hedge funds do not hedge.”
Hedge funds can add value, but careful manager and strategy selection are paramount. Hansen said that 2008 and 2011 performances exposed the limited diversification most hedge funds actually offer. There are pockets of this spectrum, however which do offer diversification, notably equity market-neutral strategies, global macro and CTAs.
Hansen said: “They also diversify each other and hence offer an attractive asset mix for a balanced portfolio. The ideal mix of strategies depends on the investor profile and it is vital for investors to have a process that identifies hedge funds with targeted characteristics and to ensure that the strategies are mixed in a way that suits their specific context”.