Some big money investors are warning that the rush to cheap stock bets and private asset strategies at the expense of hedge funds may prove costly. "As those trends run their course, it will open up better opportunities for active equity investors," Eric Alt, co-chief investment officer of $31 billion investment adviser Hall Capital Partners LLC, said Thursday during a panel discussion at the IMN Total Alts 2017 conference in San Francisco.
"Our view continues to be that (hedge funds) can play a really valuable role in portfolios," Hall said, noting that recent industry challenges around low returns were "more cyclical than structural." Hedge fund managers have for years complained that ultra-low interest rates have artificially pushed up stocks and other assets since the 2007-2009 financial crisis. Such economic stimulus programs by central banks have boosted the appeal of low-cost index funds, as well as firms that invest in private companies or debt with the help of borrowed money.
Tim Recker, chief investment officer of the $2 billion James Irvine Foundation, also speaking on the panel, said he was adding to investments in hedge funds at a time when others are pulling out. Recker said that more expensive valuations and lower returns were making investments in private equity, venture capital and other non-traded asset classes less compelling. "We are very worried about the flows into the private investment space," he said.
According to Adam Geiger, chief investment officer of investment adviser New Legacy Group, "The deck has been stacked against hedge funds." He said that low interest rates had caused minimal dispersion between the prices of different stocks and subdued market volatility, both factors that have traditionally given hedge fund managers an edge over traditional mutual fund stock pickers and cheap index funds.
"You have to be disciplined about maintaining a diversified portfolio," Geiger said in discussing private equity and other hot strategies. "If you are constantly chasing the thing that's working at this time, then you are not prepared for what the next regime change is going to be."