2 minute read
Prime Capital AG
TILO WENDORFF
MANAGING DIRECTOR AND HEAD OF ABSOLUTE RETURN, PRIME CAPITAL AG
After two volatile but prosperous years for the hedge fund industry, managers and investors alike are faced with a multitude of near-term uncertainties. To name just a few crucial ones, there are uncertainties around the ongoing evolution and impact of Covid-19, and around central bank policies with respect to possible rate hikes, as well as their stance towards inflation and whether it is transitory. Furthermore, there are geographical tensions, like the ones over in Taiwan or in the Ukraine, and we have ongoing supply chain disruptions, which we can see and feel in our everyday lives. While uncertainty and volatility can be rather unpleasant for classical buyand-hold investors in the traditional asset classes, this environment is very favourable for equity market neutral, relative value and tradingoriented strategies – all of which we believe should be core to a wellbalanced hedge fund portfolio.
In 2020 and 2021, alpha- as well as beta-driven hedge funds alike were able to perform at their best, but this will be put to the test once more in 2022. With a potential regime shift on the horizon, it is wise to err on the side of caution. With this in mind, we think a low exposure to all market-dependent hedge fund strategies is prudent, and we emphasise a focus on alpha-rich strategies or niches that are independent of broader markets.
Next to the traditional hedge fund strategies, we see a lot of interesting investment opportunities arising from the realm that resides between the world of hedge funds and private debt investments. We see various interesting alternative credit strategies, with hedge fund-like liquidity, but short-term private debt return profiles. These strategies exhibit a reliable and rich return potential, have little market dependencies, and a strong security package.
Finally, though importantly, ESG is slowly but steadily making its way further into the hedge fund space. While there are currently no unified investing or reporting standards available, which leaves many open questions (is shorting CO2 emissions heavy stocks positive, for instance?), we are certain that those roadblocks will be overcome sooner or later. Therefore, we have started to survey hedge fund managers regarding their stance on ESG matters and, while the vast majority are still in their infancy, nearly all have started to take this topic seriously. We have been positively surprised by the current state of the industry and we are looking forward to launching more initiatives, especially around improving the environment and our society as a whole.
