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Liquid alts actually did pretty well last month
Of the asset management industry’s many subsectors, none have been as reviled lately as the burgeoning liquid alts space.
They’ve been called “watered down hedge funds” at a time when hedge funds themselves weren’t even doing well, and their promise of daily liquidity seems to stymie any effort to deliver out of the park returns. Even their managers seem to have taken flak as well, with critics asking why would they do it if they were successful hedge fund managers in the first place.
Goldman Sachs however, would like to point out how awesome the space did this rocky August:
As Exhibit 1 shows, three of five GSAM Liquid Alternative Investments Peer Groups lost less than 1% over the most volatile stretch of the month, as measured by the S&P 500’s closing price high (Aug. 10) and low (Aug. 25). While the S&P 500 fell a total 11% over this period, the GSAM LAI Relative Value Peer Group, Tactical Trading/Macro Peer Group, and Event Driven Peer Group, lost 0.6%, 0.6% and 1.0%, respectively.
Given the steep losses in equity markets, it came as no surprise to us that equity long/short funds were down as well, since, historically, these strategies have been more closely correlated with equity markets than certain other strategies.1 Still, the Equity Long/Short Peer Group lost less than half the S&P 500’s decline (5.2%) – and also beat almost every individual S&P 500 Index sector. (See Exhibit 2). The GSAM LAI Multistrategy Peer Group, meanwhile, comprised of funds incorporating several different alternative investment approaches, fell by less than a quarter the S&P 500’s loss (2.5%).
All five peer groups meanwhile thrashed the traditional “balanced” portfolio’s performance in the same time frame, with the worst-performing group – Equity Long/Short – declining 5.2% in August compared to the 6.59% drop suffered by an “illustrative” 60-40 portfolio.
Does this make the case for Liquid Alts then? Goldman seems to think so, especially as drivers in well-diversified investment portfolios. It would’ve been great to see which funds they tracked for the study though.
Photo: Kristian Niemi