The overall sentiment within the room at CAIS 2016 was one of optimism. This is perhaps the most exciting period the alternatives fund industry has known and as assets continue to flow into the industry, there is no sign that the brand is running out of steam.
Tomorrow’s winners will be those who embrace the pace of change, particularly in respect to regulation; directives such as AIFMD, Dodd-Frank, and the more pervasive MiFID II, are forcing alternative fund managers to re-imagine their business and operating models to enhance the level of transparency. This, in turn, will help forge closer alliances with end investors as their desire for data and solution-driven outcomes continues to build.
In that respect, technology is key. Big Data solutions, more advanced data management capabilities, predictive analytics: all will help arm alternative fund managers and allow them to keep pace with the evolution of the marketplace although a close eye on cybersecurity protocols will be necessary to protect sensitive assets. One point that came across strongly at CAIS 2016, however, is that there’s still a long way to go to embrace the speed of change and improve the level of communication with investors.
“The biggest challenge for the industry is how to navigate the opposing forces of: on the one hand reducing systemic risk and protecting consumers, while on the other hand, encouraging people to save and invest for the long term,” suggested KPMG’s Anthony Cowell Cowell.
From a global macro perspective, Emerging Markets will continue to provide individual opportunities for managers, especially as China embarks on its One Belt One Road initiative to link China with Europe (a 21st Century Silk Road in effect) and gradually opens up its capital markets to foreign investment. On the commodity side, energy MLPs provide attractive valuations, along with Argentina farmland, gold and timber, whilst in the credit markets, marketplace lending could begin to see more securitisation of loans and increased secondary market opportunities for investors going forward.
As a final, thought provoking conclusion, here are some potential surprises – not predictions – for 2016 offered by Mark Yusko, CEO and CIO or Morgan Creek Capital Management:
• There goes the boom – developed markets fall into recession.
• Two wrongs won’t make a right – further rate increases on hold, by 2H16 begging to do QE4. Inflation expectations are that there will be deflation.
• Save us Kuroda-san you’re only hope – Yen falls dramatically.
• Saudi is not fracking around – Saudi abdicates its role as wing producer within OPEC and oil heads back towards USD40-50 by the end of the year.
• The black swan alights in Europe – messy bankruptcy of one or more commodity trading companies as the 2011 commodities bear market comes to a head.
• Déjà vu – welcome to Year 2000 2.0. S&P at similar level to 2001. Time to get hedged
• King dollar gets dethroned – USD peaks and begins to weaken against other global currencies.
• Cure for low prices is low prices – commodity prices begin to find a floor, investment opportunities amidst bankruptcies in MLPs.
• The bus stops here – go short high yield credit. Lots of defaults on the horizon.