Philippe Gougenheim, Head of Hedge Funds at Unigestion, says periods of sharp volatility in markets should lead to significant opportunities from Tactical Trading and Arbitrage strategies in the year ahead.
The financial downturn, subsequent deflationary climate coupled with historically rock bottom interest rates and an economic backdrop where 50% of global GDP is now being generated by emerging markets, has resulted in a unique trading environment.
Unigestion, the European privately owned asset manager with over USD 11 billion of assets under management, of which USD 3.6 billion is in its expanding funds of hedge funds investment activities, favours an overweight exposure to Tactical Trading and Arbitrage strategies in 2011 as it believes the former are well placed to take advantage of the opportunities created by volatile markets and shifts in expectations concerning the economic environment, while the latter benefits from a wave of corporate refinancing activity spurred on by the low interest rate environment.
In contrast, equity hedging strategies are likely to face a difficult environment. Uncertainties about markets’ direction are likely to benefit stock pickers and market neutral managers whilst opportunities are also reducing for credit hedge strategies.
Unigestion believes that individual hedge fund managers best placed to benefit from these conditions will be those who can offer a flexible, nimble trading approach, whilst meeting the increased demands of investors for transparency. Already a trend this year, Funds of Hedge Funds managers will face increasing demands to provide tailored portfolios to meet individual client needs in 2011.
Better to be a trader than an economist in 2011. An unpredictable economic landscape provides challenges for those following more traditional equity and credit hedge strategies. Fund of hedge funds will increasingly show interest in those medium sized underlying hedge fund managers adopting flexible Tactical Trading and Arbitrage strategies in order to generate strong risk-adjusted returns for investors.