Hedge liquidity debated

JUN 09, 2013
Hedge funds are champing at the bit to bring their strategies to the masses, but there are concerns about how well they would perform during a crisis. “How big can these markets get, and how much can they absorb, is going to be a challenge,” Girish Reddy, head of global hedge funds of funds at Kohlberg Kravis Roberts & Co. LP, said last Tuesday at the Bloomberg Hedge Funds Summit in New York. “There's a finite number of strategies, a finite amount of capacity. A lot of these strategies need liquidity,” said Mr. Reddy, who also is founder and managing partner of Prisma Capital Partners LP. “The question is, can the market provide it when they need it?” he said. “During stress, they could be putting even more stress on the system.” Mr. Reddy's remarks were in response to statements by fellow panelists Averell Mortimer, president and chief executive of Arden Asset Management, and Charles Stucke, chief investment officer at Guggenheim Investment Advisors, extolling the opportunity for hedge funds to get into mutual funds.

"TIP OF THE ICEBERG'

Assets in liquid-alternatives mutual funds had grown to $105 billion as of the end of April, from $66 billion in April 2010, according to Morningstar Inc. “This is the tip of the iceberg for how big this market can be,” Mr. Mortimer said. Arden recently teamed with Fidelity Investments to offer a mutual fund of hedge funds. Guggenheim doesn't offer liquid alternatives but is “aggressively” studying the option, Mr. Stucke said. “People are moving toward alternatives as they look for something different in their portfolio,” he said. Credit or event-driven strategies are two liquid-alternatives strategies of which advisers need to be wary, said Ray Nolte, managing partner and chief investment strategist at SkyBridge Capital II LLC. “Credit or catalyst-driven strategies are probably going to end badly,” he said. “Investors typically want liquidity when there's some kind of crisis, which is the exact time you don't want to be liquidating those strategies.”

Latest News

Cerulli: Advisors struggle to turn 401(k) savers into wealth clients
Cerulli: Advisors struggle to turn 401(k) savers into wealth clients

Just over 10% of advisors' wealth clients come from defined contribution plans, as capacity, data and technology gaps block the bridge to wealth

Alto to buy Forge Trust from Schwab in self-directed IRA push
Alto to buy Forge Trust from Schwab in self-directed IRA push

Deal creates a $20B-plus custody platform for private market investing in IRAs, months after Schwab closed its Forge Global purchase

Wall Street bonanza! The Street on track to hit a record $90 billion in profits: Report
Wall Street bonanza! The Street on track to hit a record $90 billion in profits: Report

Despite the good times, advisors should tread carefully, said one veteran industry executive.

Most workers have retirement plans but no retirement strategy
Most workers have retirement plans but no retirement strategy

Gallagher data reveals a huge gap in financial confidence between employees who work with an advisor and those who don't.

Small employers are more open to pooled retirement plans
Small employers are more open to pooled retirement plans

PEP assets hit $34bn at year-end 2025 as advisors navigate mandate deadlines and a 48% employer interest rate.

SPONSORED Built on insurance experience to deliver on long-term promises

Knighthead Life entered the market with a competitive MYGA. A strong launch earned advisor confidence and paved the way for FIAs.

SPONSORED In the Age of AI, Trust Becomes the Advisor's Greatest Asset

As AI makes financial information more accessible than ever, Lana Hock explains why human judgment, trust, and empathy remain the qualities clients value most in a financial advisor