Trends in Alternative Investments - Amazon S3...the portfolio diversification benefit traditionally...
Transcript of Trends in Alternative Investments - Amazon S3...the portfolio diversification benefit traditionally...
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Trends in Alternative Investments
March 2014
Presented by: Greg Peacock NZAM Head of Research
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Agenda
• Definition of Alternative investments
• Global trends in Alternatives
• Why the timing is right
• Definition of a hedge fund
• Debunking common hedge funds myths
• Examine why offshore investors are allocating to Alternatives
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History is full of the Alternative becoming mainstream…
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What is an Alternative investment?
• Investments that are not traditional investments (bonds, equity and property)
• The largest category of Alternatives include:
• Commodities • Private Equity • Hedge funds
• Alternatives can also include collectibles such as art, coins and classic cars
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Global Trends in Alternative Investing
Average Pension Fund Asset Allocation in 1995 Average Pension Fund Asset Allocation in 2012
Cash 3% Alternatives 53% Bonds 34% Equity 10%
Cash 1% Alternatives 14% Bonds 33% Equity 47%
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Global Trends in Alternative Investing
Average Asset Allocation for U.S. College and University Endowments for 2013
The survey covered 835 endowments managing US$448 billion
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Global Trends in Alternative Investing
“The heavy allocation to non-traditional asset classes stems from their return potential and diversifying power” – Yale University (Current endowment size of $20.8 billion) “Institutional investors are making significant allocations to alternatives (on average 22% of total assets). Importantly, up to one-third of respondents are expecting to increase their allocations to alternatives over the next one to three years” – Russell Investments “The results of the survey likely reflect a recognition that, going forward, the portfolio diversification benefit traditionally offered by bonds and equities might be less powerful than in the past” – BlackRock
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Yearly Performance of Bonds and Equity
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
Bonds Equity
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NZAM specialises in investing in hedge funds
This is because we do not like risk
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Hedge Funds
• A hedge fund is a fund that aims to achieve absolute returns Generating profits for investors irrespective of market conditions
• Hedge funds can generate returns in falling markets by going short (selling securities) or using derivatives to hedge portfolios
• Hedge funds are designed to manage risk • Hedge fund interest are aligned with investors
• This is a skill-based business
• The focus has to be after fee returns
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Benefits of Adding Hedge Funds to a Traditional 60/40 Portfolio Mix
$-
$1,000.00
$2,000.00
$3,000.00
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$6,000.00
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60% Equity, 40% Bond
60% Hedge, 20% Equity, 20% Bond
55% Equity, 35% Bond, 10% Hedge
Equity = MSCI WORLD FREE - Net - Local (unhedged to NZD) Bond = Barclays Capital Aggregate Bond Index (hedged to NZD) Hedge = HFRI Fund of Funds Composite Index
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Benefits of Adding NZAM to a Traditional 60/40 Portfolio Mix
$-
$1,000.00
$2,000.00
$3,000.00
$4,000.00
$5,000.00
$6,000.00
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60% Equity, 40% Bond
60% NZAM, 20% Equity, 20% Bond
55% Equity, 35% Bond, 10% NZAM
Equity = MSCI WORLD FREE - Net - Local (unhedged to NZD) Bond = Barclays Capital Aggregate Bond Index (hedged to NZD)