Deleveraging, austerity and rising nationalism. These are the headwinds that are suppressing global growth and creating the relatively low-return global environment we are currently experiencing. As a result, Delegate Advisors has maintained a muted interest in market-neutral hedged strategies as they are likely to produce limited returns in low-return environments.
In a recent interview with HFM Investor Relations, Delegate Advisors CEO Bob Borden discusses the firm’s current hedge fund stance. With an after-tax expected return of approximately 3%-3.5% for a taxable investor, “it is hard to justify a material allocation to hedge funds for taxable investors,” says Borden. “Furthermore, we feel that the opportunities that provide investors with the most attractive risk-adjusted expected returns do not lend themselves to a hedge fund structure. We believe that the most attractive risk-adjusted expected returns are in private debt and private equity.”
While general interest in hedge funds is muted, Borden did explain the firm’s interest in gaining some fixed income arbitrage exposure. “We are searching for managers that can capture the coupon from high-yield instruments in a steady market, but that can also generate alpha or at least protect capital in the event of a market correction. We simply believe that a fixed income arbitrage manager is a better allocation than a long-only high-yield manager at this point in the cycle.”
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