Michael Kelly, global head of multi-asset at PineBridge Investments, suggests that while it would be a mistake to “start reading the last rites” for hedge funds, those involved must be prepared to adapt to very changed circumstances.
He says: “They will need to tear down their gates, slim down their fees, and be more transparent. Finally, they will need to accept that, five years from now, I predict there will be no allocation to hedge funds.
“Should that last part of my prognosis sound suspiciously like a death sentence, fear not – it is nothing of the kind.
“In place of the hedge-fund allocation will be an allocation to a total return sector that will include the most talented of the funds merging their approach with that of managers in the multi-asset or ‘liquid alts’ space.”
He adds: “Just as multi-asset managers have sought to blend the total return mind-set, and risk-control focus of hedge funds with the advantages of mutual funds in terms of lower cost, transparency and liquidity, so the blending of these two talent pools can only deliver better returns at a lower cost.”
This overlap of seemingly different ideas – absolute/total return and multi-asset, and indeed the blurring of the retail and institutional funds universes have been among the big trends of the past decade, which I’ll discuss further soon.
