Sophisticated Alternative Funds Set to Gain Popularity as Volatility Returns to Global Markets, MPG says
Investors will look to hedge and actively-managed funds with broad mandates to deliver alpha, CEO tells London conference
Passive funds are set to lose popularity with sophisticated investors, who will turn to actively-managed funds that can outperform in volatile markets over the next few years, Jeremy Leach, Chief Executive Officer at Managing Partners Group (MPG), the international asset management group, told a conference in London today.
Investors will want alternatives that can deliver ‘alpha’, such as hedge funds and actively-managed funds with broad mandates, Jeremy Leach told delegates at The Summit for Asset Management being held in the InterContinental Hotel. These funds will likely apply highly sophisticated techniques, including quantitative analysis and artificial intelligence (AI) that can process vast amounts of data and trade quickly to exploit opportunities, he said.
As such, he expects sophisticated investors’ interest will switch away from the passive ‘beta’ funds that have delivered strong performance at low cost amid the steady industrial growth and low interest rates and inflation seen over the last 10 years.
Jeremy Leach commented:
"We are now facing a time when the economic outlook is much less certain and the potential for a correction in equities far outweighs their upside potential. As we head into a new economic cycle, the opportunities to achieve alpha are greater than they have been for a long time because of the much greater volatility we are likely to see."
"Diversification is going to be key and it is inevitable that the analytical powers of AI and machine learning will continue to be an increasingly important factor in asset management. However, we all know that algorithms have flaws that can prove costly, so they should be overseen by humans or AI."
Jeremy Leach told the conference that investors’ expectations of alpha have changed significantly over time. Whereas in 1980 the UK base rate was 14% and the Fed Funds rate hit a high of 18%, with the risk-free rate now down to around 2% a target return of 3.5% would appeal to many investors and anything above 10% would likely be perceived as too risky.
MPG is an award-winning business, having been named the 2018 Alternative Investment Firm of the Year – Europe by The European business publication, while its High Protection Fund won the Best Diversified Fund (Five Years) and Best in Insurance-Linked Investments categories in the 2018 Corporate USA Today Awards.
MPG is a multi-disciplined investment house that specialises in the creation, management and administration of Cayman Islands regulated mutual funds and issuers of asset-backed securities for SMEs, financial institutions and professional investors. The wider Group currently has over $500m assets under management