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Ted, I doubt that MOST "alternatives" will provide diversification when the Bear returns. (there will be a few exceptions -- a few managers who will deduce correctly that a Bear is imminent, and position their holdings accordingly --- but there is no way to confidently predict who those managers will be.
A broader point: --- And pardon my ignorance on the subject/set me straight --Aren't most dollars invested in "alternative assets" really invested in conventional assets (equities, debt instruments), which may be managed in an atypical or "alternative" fashion? What I mean is: L/S funds, 130/30 funds, merger-arbitrage, convertible-arbitrage, smart-beta, etc --- these are invested in conventional assets. Aren't they? --- To me, it doesn't pass the "smell test" that liquid-alt managers will be able to provide real diversification benefits when the Bear strikes -- which really, is the ONLY time investors need diversification.
I will concede there do seem to be some truly 'alternative assets' out there -- managed futures (though, some futures are equity- and interest-rate futures, yes), commodities. But will the underlying assets in even these assets provide real diversification during a bear? I am skeptical.
My sense of things is the "liquid alts" buzz is mostly an industry-marketing initiative -- attempting to slice off a piece of of the tsunami of investors' money which is moving from active money-managers to passive strategies by rebranding active management and calling it "alternatives" -- and maybe an excuse to charge investors even more than a typical active manager. Any thinking active money-manager can probably give himself a pay raise (i.e. raise the E/R of his fund) by slapping a "alternative" or "smart-beta" appellation on the fund. -- That doesn't mean the manager suddenly became more adept at managing money or has figured out how to not be mauled by a Bear.
If a Bear approaches, the best 'alternative asset' is.... CASH.
Comments
A broader point: --- And pardon my ignorance on the subject/set me straight --Aren't most dollars invested in "alternative assets" really invested in conventional assets (equities, debt instruments), which may be managed in an atypical or "alternative" fashion? What I mean is: L/S funds, 130/30 funds, merger-arbitrage, convertible-arbitrage, smart-beta, etc --- these are invested in conventional assets. Aren't they? --- To me, it doesn't pass the "smell test" that liquid-alt managers will be able to provide real diversification benefits when the Bear strikes -- which really, is the ONLY time investors need diversification.
I will concede there do seem to be some truly 'alternative assets' out there -- managed futures (though, some futures are equity- and interest-rate futures, yes), commodities. But will the underlying assets in even these assets provide real diversification during a bear? I am skeptical.
My sense of things is the "liquid alts" buzz is mostly an industry-marketing initiative -- attempting to slice off a piece of of the tsunami of investors' money which is moving from active money-managers to passive strategies by rebranding active management and calling it "alternatives" -- and maybe an excuse to charge investors even more than a typical active manager. Any thinking active money-manager can probably give himself a pay raise (i.e. raise the E/R of his fund) by slapping a "alternative" or "smart-beta" appellation on the fund. -- That doesn't mean the manager suddenly became more adept at managing money or has figured out how to not be mauled by a Bear.
If a Bear approaches, the best 'alternative asset' is.... CASH.