The first quarter of the year was overall positive for hedge funds, according to Swiss alternative investment company Altin.
Appetite for risk continued to dominate markets and led to good returns for risky assets, especially in the US, where the economic recovery seems sustainable and where good liquidity prevails.
In Europe the situation improved, but markets remained nervous around specific events, such as the inconclusive Italian elections or the Cyprus bailout negotiations. Japan has also come back into the picture with the appointment of the new governor of the Bank of Japan and its willingness to depart drastically from former policies, providing a dramatic boost to equity markets.
On the emerging market front the situation is more difficult as policy tightening is keeping investors on guard.
Generally speaking correlations went down and markets are re-focussing on idiosyncrasies. As expected a few months ago, the decrease in tail-risk due to the sovereign debt crisis in Europe and the improvement of market dynamics led managers to take more risk and therefore to enhance returns. Positive performances came both from directional long risk exposures and from relative value trades as well as specific events.
Recognising the improved environment, Altin will keep on re-risking its portfolio and moving down the liquidity curve. Altin will be increasing its allocation to aggressive managers across strategies and overweight the allocation to event driven and credit managers with a bias to Europe. Investment opportunities remain plentiful, especially where banks are reducing activity, even if these opportunities are not broad-based or easily accessible to everyone. It therefore remains key to identify the precise strategies and specific managers who have the right skills, resources, experience and AUM size to implement them successfully.
The improvement in market dynamics and the reduction of tail-risk, coupled with a very appealing opportunity set, means that Altin is continuing to take advantage of its stable capital base and invest in less liquid strategies with higher expected returns. This allocation shift continues to be implemented gradually.
Altin is a closed-ended and fixed capital fund and as such it is not faced with redemption requests. This provides the investment manager with the opportunity to select the best risk/reward opportunities in the hedge fund universe. Investors can freely buy and sell Altin shares on a daily basis on the London or Swiss stock exchanges, without the need to redeem at fixed redemption dates.