Systematic cash equity strategies took advantage of increased dispersion in stocks during 2023 to build on their success from the previous year.
In contrast, many CTAs and other directional systematic strategies struggled to recover after being caught wrongfooted during the steep bond rally in March. While returns improved in subsequent months, more challenges emerged at the end of the year as markets sharply priced in a shift in inflation expectations.
Meanwhile, fundamental equity strategies posted strong performance, as broad pessimism at the beginning of the year evolved into constructive risk taking on better than expected earnings and economic expectations. Although short selling was challenged due to the market rally, the alpha spread opportunity for market neutral managers was abundant.
Discretionary macro strategies had a year of two halves, with early losses being offset by a strong rebound in the second half of the year.
Macro managers struggled with the March bond market rally as many had positioned for interest rates to continue moving higher. However, their positioning was rewarded when bonds sold off again as sentiment moved back toward interest rates remaining higher for longer.
It was also a generally positive year for relative value and credit strategies. Corporate credit and structured credit strategies benefited from credit dispersion between issuers and sectors and a tightening of credit spreads – especially towards the end of the year, while relative value strategies benefited from opportunities arising from mispricing of related securities.
Against this industry backdrop, the Alternative Investments Department (AID) continued to provide diversified absolute returns to the total ADIA portfolio in 2023.
Among key initiatives, the Department launched a managed account platform and onboarded the first phase of existing managers. The platform will provide a more cash efficient structure while allowing for greater investment flexibility.
On the recruitment front, AID continued to build out its team with high-quality talent, while remaining fully committed to developing its current team and nurturing a new generation of UAE National graduates.
Looking ahead, AID will maintain its focus on allocating to liquid strategies with predominantly low beta given its absolute return mandate. The Department will continue to look for opportunities to invest in best-in-class talent across strategies to complement its existing long-term partnerships.
