Catalpa’s McAlinden Upbeat About Future Of Hedge Fund Industry

Sep 15 2011 | 3:38pm ET

Joseph McAlinden, chief investment officer of alternative asset management firm Catalpa Capital Advisors, thinks we’ve entered an era of “continuous discontinuous change,” but that hedge funds could well succeed in such an era.

“I can’t think of an investment approach that is better suited to deal with that environment than one which looks to make money on the downside, from industries which are in decline, while at the same time making money on the upside from industries that are in expansion and along the way dampening the volatility of the portfolio,” McAlinden told an audience of 160 asset managers, investors and industry professionals at the FINforums Annual Hedge Fund Summit in New York yesterday.

McAlinden, who spent over 12 years at Morgan Stanley Investment Management prior to joining Catalpa, admits recent industry data is “not that encouraging about our ability as an industry to deliver on the promise of decent returns and low volatility.”

Hedge funds have just come through a brutal August. Most of the main strategies have failed to deliver absolute returns so far this year and, on a one-year basis, none has beaten the S&P 500.

“But when you look at the three-year numbers and the five-year numbers,” said McAlinden in his keynote address, “basically, hedge funds are doing what they said they can do, in the aggregate."

“I think that, as an industry, we’re figuring all this stuff out. I think the two-to-five-year numbers speak to that, and we learn from our mistakes…My bottom line is we’re not at the beginning of the end of the hedge fund era, but rather the end of the beginning. I think these last 20 years were really kind of the first chapter of what’s going to be a very thick book…”

The Catalpa CIO thinks the sheer speed at which new ideas can be shared has created a “turbulent, fast-paced world…characterized by volatility in all aspects of life.” Soon, he says, we’ll have a planet with “8 billion people knowing what’s happening everywhere in the world,” (a contention he illustrated with the story of his wife’s recent visit to Africa where she found herself in a Maasai compound in which the elder’s hut was equipped with a solar panel to charge his cell phone).

McAlinden says he’s optimistic that returns in this volatile new world will “surprise on the upside, in aggregate.” But to see positive returns, money managers will have to seek out global opportunities over the next 10 to 20 years, rather than “living in ‘our world’ in the U.S.”


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