Investors are craving investment strategies that don’t rely on stock picks, and some big name hedge funds are satisfying that hunger with hot alternative asset strategies.
If you’ve got ready cash and time to wait for these distressed assets to rebound, the buying opportunity in alternative investing is abundant. Alt-asset funds are generally packed with less liquid assets than a long-short equity fund, which leads to fund managers asking investors for lengthy commitment periods. Regardless of these lock-ups, we see investors favoring these strategies and willing to make these commitments because fund managers are offering a specific defined product to invest in that isn’t affected by volatile swings in the stock market.
The flash crash was a clear example of how high-frequency trading (HFT) can destroy even blue chip stocks literally in minutes. But, trading an alt-asset product such as discounted commercial whole loans is not subject to price manipulation by a computer program’s pre-arranged trades.
Investors are wary of stocks
Andre Haroche, Partner in the Connecticut-based private equity firm Grumman Hill, says, “Boomers I work with are extremely concerned that their hard-earned wealth is exposed by investing in equities. We know today’s risk swings in the market are from the combination of excess liquidity in the system combined with HFT trading. So, often I go back to my value investing roots and try to indentify assets that are not subject to these kinds of surges.”
HedgeFund.net research shows fixed-income arbitrage was the fastest growing strategy in the third quarter of 2010 for the second consecutive quarter. It is the discounted buying and selling of commercial whole loans that Elton Wells, head of structured products trading for SecondMarket, says enabled his firm to broker the sale of a bank loan for a Florida golf resort valued at $33 million for less than $10 million to a family fund, a deal he expects to be flipped for a profit this year.
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