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SALT Conference – ALTs Nation: The Proliferation of Alternatives in the Modern Portfolio
Gregory Zuckerman (Moderator)
Special Writer, The Wall Street Journal
Hua Fan
Head of Fixed Income and Absolute Return Investment Department, China Investment Corporation (CIC)
Roxanne Martino
Partner, Chief Executive Officer & Investment Committee Chairperson, Aurora Investment Management
Colbert Narcisse
Managing Director & Head of Global Alternative Investments, Morgan Stanley
Leonard M. Tannenbaum
Chairman & Chief Executive Officer, Fifth Street Asset Management
Sarah Keohane Williamson
Partner & Director of Alternative Investments, Wellington Management Company
Notes from SALT Conference 2015 Panel II – ALTs Nation: The Proliferation Of Alternatives In The Modern Portfolio
Panel talking about why investors should invest in hedge funds….
Sarah Keohane Williamson – Not all investors are looking to beat an index,, and creating an alt portfolio can match an investors true investment goal
Leonard M. Tannenbaum – It is all about manager selection
Sarah Keohane Williamson – Looking for where alpha can be added with hedge funds and beta levels
Illiquidity premium
2.1 Trillion in dry powder — not allowing people to garner an illiquidity premium
Leonard M. Tannenbaum – Corporate bond market spreads are very wide, a lot of illiquidity. Hedge funds can be the market makers
Alternatives that dig in and do the analysis and can provide liquidity. Long only managers will stay away
Colbert Narcisse – Amount of capital HNW investors are investing in ALT’s is less than 5%, so still a long way to go bc they should be at 15-20%
Focus on manager selection and NET RETURNS
Way too much focus on fees
Faulty logic to assess funds vs the S&P
Solid managers should get more assets, bad managers
He would prefer to pay the full 2 and 20 for 20% returns than 80bps for 8% returns
Roxanne Martino – Hedge funds only own about 4% of the US equity market
She has heard the noise that their are too many hedge funds for the last 30 years
Hedge funds can make a huge impact and make a ton of money in the credit markets
We engage in heavy negotiations on fees – looking for cheaper fees
Taking an equity position, often times the managers are paying them to manage a big chunk of money
Hua Fan – Hedge funds provide a better risk adjusted return
2.9Trillion in hedge funds, but total assets out is like 300 Trillion
Sarah Keohane Williamson – Interesting oppty in energy, a lot of winners and losers in that space!
Roxanne Martino – Focused on event driven
Focused on long/short specialists (sector specialists)
A real opportunity to invest in some start up managers
Hua Fan – Adding china to the MSCI is just a matter of time
Amount of chinese with a brokerage account is SKY ROCKETING
What tips do you have to find managers who add alpha:
Sarah Keohane Williamson – Ask why they should make the return? Too many REALL smart people in this business, that does not cut it anymore
Most managers can’t answer that questions
Leonard M. Tannenbaum – Only speaking to private equity – invest in operators, stay in the top quartile of PE managers
Colbert Narcisse – Looking for infrastructure, well balanced team, rigorous investment debates internally and the ability for the manager to have at the firm
Roxanne Martino – Why does this manager have an edge? solid business and compliance
Need to have the edge in order to stay with the manager
CALPERS decision to fire all hedge funds is causing all allocators to take a step back and have a strong internal debate
Overall pension plans are increasing their allocation to hedge funds, not decreasing
Pensions are matching assets and liabilities
Public funds are so under funded they are looking for high returns
CALPERS decision is one off and circumstantial –every situation is different and lots of politics in pension plans
