Investment Review
Alternatives
Financial markets remained buoyant throughout 2019, and this positive performance was reflected across alternative investment strategies.
Most established managers enjoyed a strong year, often achieving double-digit returns, and many regained their high water marks.
Systematic strategies came out of the blocks slowly, but by the end of the summer they were posting significant positive returns as strong price trends prevailed. Despite pulling back somewhat during the last quarter, these strategies still managed to finish the year higher.
Global Macro managers started 2019 strongly and performed well throughout, offsetting the dip in Systematic returns as the year drew to a close. Although economic data was not always positive, markets were rarely surprised and many Global Macro managers saw their themes play out.
As would be expected at a time of market confidence, strategies with a strong correlation to equities performed well.
Equity Hedge managers finished the year strongly despite taking a glancing blow in September as market factors rotated from momentum into value.
A boom in US merger and acquisition activity, particularly in the large cap space, provided plenty of opportunities for Event Driven managers to recover from a relatively disappointing 2018. Meanwhile, Relative Value strategies continued their successes of the past few years.
Across the alternative investments industry, 2019 was another year in which fund closures outpaced launches, as regulatory demands continued to grow and the lure of roles within large multi-asset managers discouraged some from striking out on their own. A number of high-profile managers returned capital to their investors. Transitioning into a family office was the preferred option for many hedge fund managers.
ADIA’s Alternative Investments Department provides diversified and enhanced risk-adjusted returns to ADIA’s overall portfolio, primarily through its investments across a range of hedge fund strategies. The Department recorded strong performance in 2019 and made a positive contribution to the total portfolio for the year.
During the year, the Department made the decision to organise its investments across traditional hedge fund strategies into two distinct portfolios, comprising Systematic and Global Macro strategies in one and Equity Hedge, Event Driven, and Relative Value strategies in another.
The Emerging Opportunities mandate, which seeks to capture sources of return with low correlation to traditional asset classes that otherwise would not fit into ADIA’s portfolio, also made its first investments in 2019. These included insurance-linked strategies, while the team also continued to research a range of other areas of potential interest.
The environment remains extremely competitive for managers in 2020. From a recruitment perspective, those seeking to attract and retain talent increasingly find themselves pitched not against their former employers in investment banking, but against technology companies keen to gather and monetise data. With investing talent continuing to find new career paths, managers that fail to secure the right people will, in turn, find it difficult to attract new investors.
The blurring of boundaries between investment strategies will continue apace, as the role of technology in investing evolves and permeates increasingly deeper into how managers operate. This will create new opportunities, and those that are able to adapt to this changing landscape are likely to thrive. Indeed, adaptability may emerge as one of the key characteristics of successful managers in 2020 and beyond.
As the Alternative Investments Department surveys this landscape, it continues to seek out those managers and strategies that are best placed to succeed in the current environment and are preparing to adapt to the opportunities of the future.