Innovest Portfolio Solutions

“IN 2022, WE’RE LOOKING TO WORK WITH HEDGE FUND MANAGERS WHO ARE PASSIONATE AND WHO ARE CONSTANTLY LOOKING AHEAD IN TERMS OF THEIR BUSINESS PHILOSOPHY AND GROWTH.”

SLOAN SMITH

PRINCIPAL AND DIRECTOR, INNOVEST PORTFOLIO SOLUTIONS

We will continue to focus on the multi-strategy space in 2022, as the risk/ return profile for these strategies still looks attractive. In 2020 and 2021, we continued building a core position in hedge funds. We’ve built a core allocation, which is more of a multi-strategy allocation, to solve the issues we’ve experienced with regards to fixed income. These have more bond-like characteristics, but with only slightly higher volatility. Obviously fixed income is very liquid, where hedge funds are not, but these investments were great at keeping risk low, and worked well to minimise drawdowns. Markets have experienced several periods of volatility over the past two years, but we didn’t experience any heavy drawdowns in our hedge fund allocations, which was tremendous. We prefer generalists over sector specialists. We’re looking for robust diversification in our hedge fund portfolios. While we do allocate to equity long/short and to some credit strategies, we like to focus on multi-strategy businesses with good teams, such as the Elliott Managements, the Millennium Managements, the Citadels, who are able to capitalise on areas of a strategy where there’s some opportunity, depending on the markets. In 2021, we saw our multi-strategy firms allocate capital very seamlessly to credit. Our multi-manager platforms were great at mitigating drawdowns and allocating to areas of the market, such as energy and financials.

In terms of new and developing trends, we expect that we might see some more spin-offs from larger hedge funds, especially among star portfolio managers.

In 2022, we will almost certainly spend most of our time on established names. We conduct annual reviews, and last year we found that managers performed well. We saw a very small percentage of managers getting caught up in areas such as the options market, where they weren’t underwriting the lack of liquidity and blow-up risk but, on the whole, it was very few. In 2022, we’re looking to work with hedge fund managers who are passionate and who are constantly looking ahead in terms of their business philosophy and growth. We ask each manager whether ESG is part of their investment philosophy, and we want to see strategies consider this item in their process over the coming year.