Stonehaven's Top 10 Alternative Investment Trends For 2015

Jan 15 2015 | 9:03am ET

By David Frank, CFA
CEO & Managing Partner, Stonehaven, LLC

Over Stonehaven’s 14 year history we have witnessed and played a role in many shifting dynamics across the alternative investment industry. We are well-positioned in the marketplace to see trends with a 26 person platform representing over 20 asset managers to the global investment community.

Following are the top trends we are actively discussing amongst our team members, managers, and investors.

1. Fund flows into alternative investments will continue at a strong pace.

While there might be one or more large allocators that exit the hedge fund space similar to CALPERS, the overall trend of large institutions increasing their allocation to alternative investments is likely to continue.

Portfolio construction has historically relied on the twin pillars of equities and fixed income, one typically helping offset the other in different market environments with both providing returns above inflation over a longer time horizon. However, today’s fixed income markets provide extraordinarily little potential upside to help offset a theoretical sell-off in equities with US 10yr yields at 1.95%, British at 1.60%, German at 0.49%, Japanese at 0.26%, and Swiss at 0.18%.

Institutions are likely to continue increasing investments in alternative investments that can provide more stable returns with low correlations as fixed income surrogates. Given this role, it is no surprise that return expectations have come down. Furthermore, the focus on stability has driven investors toward the largest managers with brand names. For many investors the focus on conservatism outweighs other factors.

Alternative investments are also competing for the equity allocations of traditional portfolios as institutions accept that hedge funds aren’t an asset class but an organizational structure where a large portion of the asset management industry’s top talent resides. Increasingly institutions are removing alternatives as a bucket and considering how to use alternatives across all aspects of their portfolio construction.

Niche/peripheral strategies are also likely to benefit from increasing fund flows as valuations in more mainstream asset classes encourage investors to explore further into areas such as private lending, physical asset trading, commodities, emerging markets, CTAs, etc. 

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