Fidelity launches business mimicking hedge-fund strategies

Fidelity Investments is jumping into liquid alternatives, products that offer regular investors access to hedge-fund like strategies and are raking in billions of dollars amid rising interest rates and increased market volatility.

The money-manager has started a new unit, Fidelity Diversifying Solutions, which is hiring staff and rolling out offerings, according to a statement from the entity’s president, Vadim Zlotnikov. The segment also filed to register two funds at the end of last year, Fidelity Global Macro Opportunities and Fidelity Risk Parity.

“We’ve heard from our clients that they are looking to diversify,” beyond traditional stocks and bonds, Zlotnikov said in the statement. “We’ve explored these areas in the past, but today and going forward we have a strategic commitment to building a world-class alternative franchise.”

Liquid alternatives are registered mutual funds that took off following the financial crisis only to fall from favor as the Federal Reserve’s easy money policies buoyed stocks and other plain-vanilla investments. The sector staged a comeback during the pandemic, adding $29 billion last year and marking the first time since 2015 that inflows exceeded redemptions, according to Morningstar Inc. 

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‘RENEWED INTEREST’

“There has been significant renewed interest in liquid alts, both from retail and institutional investors,” said Erol Alitovski, a Morningstar strategist, adding that funds attracted an additional $8.2 billion in the first two months of this year. “It’s a different sort of asset class and strategy that can produce returns in a volatile environment.” 

In addition to mutual funds, Fidelity Diversifying Solutions plans to offer strategies through traditional limited partnership structures that provide less liquidity to investors, Zlotnikov said. 

The new unit is part of Fidelity’s push to expand its alternative investment capabilities. The Boston-based asset manager already offers some strategies for investing in distressed debt, real-estate debt, private equity and Bitcoin.