“The impact of QE has been a bit of a struggle for long/short managers”, head of Schroders’ GAIA range of hedge fund strategies Andrew Dreaneen (pictured above) told a crowd of Swiss fund last week at Expert Investor Schweiz in Zurich. “Returns have been overwhelmed by macro issues so it has been a tough time for the fundamental guys.”
This sort of correlations is a particular hit to hedge fund managers, who typically charge higher fees than their long-only peers and are therefore under even higher pressure to show their added value.
A challenge on both ends
Dreaneen, who selects both internal and external hedge fund strategies for Schroders, emphasised that hedge fund managers have had great difficulty in distinguishing themselves from their peers over the past years. “This has been a challenge for us [to pick the right manager], as they have all made and lost money at the same time. Finding good discretionary macro guys hasn’t been as easy for us as discovering the right long/short strategies.”
Managing a long/short book, however, is no bed of roses either. “One of the things I have learnt during
the five years I have done that is that our possible growth exposure is determined by the availability of short opportunities,” Barry Norris (pictured right), manager of a long/short equity portfolio for Argonaut, responded.
Unwinding the trades
According to Norris, shorting stocks often doesn’t work in market which is driven by liquidity such as QE-like monetary stimuli. “During these periods, the mentality of the markets is that rubbish can suddenly become attractive. So, during a time like this when it seems likely the ECB will do more QE, we should perhaps reduce the short positions we have on banks”, he said. “But the consequence of that will be that we have to take down the long book as well to retain consistent volatility.”
Fund selectors attending the event in Zurich seemed to recognise the difficulties long/short managers are facing. Only three in 10 of them said they will increase their exposure to alternative Ucits equity funds, while almost 40% do not even use them. The Swiss are even more sceptical about alternative Ucits fixed income strategies: 62% don’t use the asset class, and of those who do, none say they will increase allocation.
Click here to see a slideshow of photos taken during Expert Investor Schweiz.
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