SkyBridge 's Nolte: Liquid Alts Risk Trading Performance For Liquidity

Jun 15 2015 | 2:03pm ET

Skybridge Capital will hold off on launching liquid alternative products as it expands into the mutual fund space.

The hedge fund-of-funds company has found it difficult to translate traditional hedge fund strategies into vehicles that meet the liquidity and other requirements placed on mutual funds, noted Skybridge CEO Ray Nolte in an interview with Investment News.

Such funds provide daily liquidity and access to sophisticated investment strategies normally out of reach of individual investors. Interest in liquid alternatives has skyrocketed in recent years, despite concerns that such advantages can ultimately handicap performance, especially among certain merger arbitrage and credit strategies. 

Investors allocated $12.5 billion to liquid alternative products over the past year, according to Morningstar. The industry boasted $154 billion in AUM in 2014, up from only $80 billion in 2011.

“Some of the constraints impact the performance, and while we think you can create a better liquidity vehicle, we think the tradeoff that you make to get there isn't the best one,” Nolte said in the interview. 

When it comes to fund-of-hedge fund products such as those in which SkyBridge specializes, Nolte noted that “it would be difficult to create a world-class product that checks the daily liquid-alts boxes.” 

Ultimately, the company has decided to concentrate on expanding into more traditional mutual fund vehicles. “We concluded that certainly at this juncture we do not want to launch product in that space,” Nolte said. “We think some of the issues are holding back hedge fund managers from running more alternative strategies in a daily liquid format.”

SkyBridge launched its first mutual fund, the Dividend Value Fund in 2014, and plans several additional launches going forward.

The company’s position is a rare step backwards from what has been an area of intense focus for large investment managers in recent years. Blackstone, Goldman Sachs, PIMCO, Deutsche Bank and BlackRock have all embraced the structure as a way to gather additional assets.

New York-based SkyBridge has approximately $13 billion in assets under management and advisement. It is well known for its annual SALT Conference of hedge fund industry participants. 


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