We have delayed our monthly global themes on one page given the US presidential election. There was too much uncertainty associated with the election to focus on the core themes of growth and valuation. Now that the election is over, we can focus on what is most important, growth, liquidity, and risk appetite. Financial markets are driven by the underlying economics of policies and not the personality of the president. Focus on policy, not the man. Personality matters to the degree that policy agendas can be moved. This is not trivial, but what moves markets are the policies. The key is determining what will get done, when, and how much. These policies have to be balanced with growth prospects around the world.
After hundreds of discussions with hedge fund managers, I am still surprised that there is a fear of revealing investment processes under the assumption that someone will steal their ideas and intellectual capital. There are few investment styles that are truly unique and special. What is special is still strategy execution – the practical process of delivering returns. Skill is with the decision-making execution of information and strategy.
All hedge funds are not created equal as the return box chart shows for the post Financial Crisis period. There is a significant amount of dispersion across hedge fund styles. Over the period 2009-2018, the difference between the best and worst hedge fund category is almost 7 percent after we account for global equities and bonds.
The attraction to private equity and other less liquid alternatives is clear from the Guide to Alternatives by JP Morgan Asset Management. The return profile is much higher for private equity and debt funds than more liquid alternatives and global bonds; however, the dispersion in returns is multiples higher than what can be expected from other public categories.
