Investment Strategies

Alternative investments are investment products outside traditional investments like stocks, bonds, cash or property. The alternative investment industry includes hedge funds, funds of hedge funds, managed futures funds and other non-traditional asset classes.

Alternative investment managers are distinguished by their objective to deliver absolute returns, regardless of market conditions. Using strategy-driven and research backed investment methodologies, alternative managers aim to provide broad asset diversification benefits such as lowered volatility (risk) and the potential for improved performance.

 

Hedge Funds

  • Hedge funds are private investment tools that invest in a range of assets and utilize a variety of investment strategies intended to maximize returns regardless of market conditions.

 

Funds of Funds

  • In the 1970s, the specialization of individual hedge funds led to the creation of the first fund of hedge funds which invested in a portfolio of different hedge funds to provide broad exposure to the hedge fund industry and to diversify the risks associated with a single investment fund.

Managed Futures Funds

  • Managed futures fundsare made up of investments with both long and short positions in futures contracts and options on futures contracts in the global commodity, interest rate, equity, and currency markets.

Investing Strategies

  • Global Macro:
    • Investment managers use economic variables and the impact these have on markets to develop investment strategies;
    • Managers employ a variety of techniques including discretionary and systematic analysis, quantitative and fundamental approaches, and long and short-term holding periods; and
    • Strategies are based on future movements in underlying instruments rather than the realized valuation discrepancies between securities.
  • Event Driven:
    • Investment managers maintain positions in companies currently or prospectively involved in corporate transactions including mergers, restructurings, financial distress, tender offers, shareholder buybacks, debt exchanges, security issuance or other capital structure adjustments;
    • Managers pursue strategies based on fundamental characteristics (as opposed to quantitative) and specific future developments; and
    • Position exposure includes a combination of sensitivities to equity markets, credit markets and company-specific developments.
  • Relative Value:
    • Investment managers maintain positions based on valuation discrepancy in the relationship between multiple securities;
    • Managers employ a variety of fundamental and quantitative techniques; investments range broadly across equity, fixed income, derivative or other security types; and
    • Positions may involve future corporate transactions, but these positions are predicated on realization of a pricing discrepancy between related securities rather than the outcome of the corporate transaction.
  • Equity Funds:
    • Investment managers maintain long and short positions in equity and equity derivative securities;
    • Managers employ a wide variety of techniques to arrive at an investment decision, including both quantitative and fundamental techniques; and
    • Strategies can be broadly diversified or narrowly focused on specific sectors and can range broadly in terms of levels of net exposure, leverage employed, holding period, concentrations of market capitalizations and valuation ranges of typical portfolios.
  • Quantitative Funds:
    • An investment fund that trades positions based on computer models built to identify investment opportunities;
    • These models can utilize an unlimited number of variables, which are programmed into complex, frequently-updated algorithms; and
    • Quantitative funds models are used as a means of executing a number of other hedge fund strategies.
  • Multi-Strategy Funds
    • Investment managers maintain a variety of processes to arrive at an investment decision, including both quantitative and fundamental techniques; and
    • Strategies can be broadly diversified or narrowly focused on specific sectors and can range broadly in terms of levels of net exposure, leverage, holding period, concentrations of market capitalizations and valuation ranges.
  • Managed Futures Trading
    • Managed futures traders–also known as commodity trading advisors (CTAs)–are able to invest in up to 150 global futures markets;
    • They trade in these markets using futures, forwards, and options contracts in everything from grains and gold, to currencies, stock indexes, and government bond futures; and
    • Because they can go both long and short they have the ability to make money in both rising and falling markets. CTAs have been regulated by the Commodity Futures Trading Commission (CFTC) since 1974 and are overseen by the National Futures Association (NFA), a self-regulatory organization.