Hedge and non-hedge collide

Date: Friday, June 1, 2007
Author: Michelle Baltazar, Financial Standard

Investment portfolios would become increasingly more complex as both traditional and hedge fund styles of investing continue to merge, said Jeff Rogers, chief investment officer at ipac Securities.
 
Speaking at the Rainmaker Marketing Symposium today, Rogers said that many investors are slowly adapting the investment style of hedge fund managers to generate returns.
 
“They are saying ‘why have hedge funds done well?’ and that’s because they have fewer constraints, they use leverage cleverly and they constantly look for sources of return that are very different to the vanilla type of returns that [traditional managed fund] investors are locked into,” he said.
 
Calling it “Yale endowment envy”, after the growing number of fund managers hoping to clone the high returns of the Yale Endowment Fund, Rogers said the industry has become more open to alternative investments making up a huge proportion of their portfolio.
 
In the past, a typical portfolio may be 60 per cent domestic equities, 30 per cent fixed income and the rest in international equities or other overseas investments. But today, up to a half of a portfolio could be invested in international equities, international property, global infrastructure, private equity and emerging markets equities.
 
Alternatively, investors may still hang on to traditional investments but use gearing to boost returns. “What you’ll see is a repackaging through leverage that will re-energise low risk asset classes.”
 
As for ‘alpha’ and ‘beta’ sources, the search will go beyond domestic bonds and equities. “Alpha and beta are ultimately going to be global, they don’t have to be local,” he said.
 
The end result is that investment houses will no longer provide the ‘entire package’ but source specialist managers for certain parts of a typical client portfolio. 
 
Fellow speaker Paul Scully, managing director of Decision Horizons, concurred and said that "unbundling of investment processes" is one of the main investment trends driving the industry.
 
Rogers said he wouldn’t call it ‘dynamic allocation’ but from a financial planning perspective, asset allocation strategies will become more flexible and more responsive to investor needs than they are today.

Michelle Baltazar