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
Transcript of Trends in Alternative Investments - Amazon S3...the portfolio diversification benefit traditionally...
Trends in Alternative Investments
March 2014
Presented by: Greg Peacock NZAM Head of Research
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
History is full of the Alternative becoming mainstream…
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
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%
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
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
Yearly Performance of Bonds and Equity
-40%
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-20%
-10%
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Bonds Equity
NZAM specialises in investing in hedge funds
This is because we do not like risk
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
Benefits of Adding Hedge Funds to a Traditional 60/40 Portfolio Mix
$-
$1,000.00
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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
Benefits of Adding NZAM to a Traditional 60/40 Portfolio Mix
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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)
