Absolute returns a ‘disaster waiting to happen’, says Alt Ucits manager

Citywire interviews Andrew Beer on some of the significant issues facing investors today.

Excerpt:

There are serious concerns surrounding many Alternative Ucits funds, as many liquid alternative funds are failing to perform, while charging high fees and presenting serious liquidity risks.

That is according to hedge fund veteran and boutique founder Andrew Beer, who is a managing member at Dynamic Beta Investments and has 24 years of experience in the hedge fund industry.

As interest rates have come down, there has been a significant growth in unconstrained bond funds, he said. However, there has been a growing sense of frustration towards these strategies.

The promise of daily liquidity is clouded by the use of instruments that don’t necessarily afford it in every environment, Beer said, as these products often have a liquidity mismatch.

‘The bond market is extremely fragmented so the trading is much thinner than in the equity markets,’ he told Citywire Selector.

‘A serious risk today is that you have all of these Alt Ucits funds like GAM who promised their investors daily liquidity while investing in some instruments they can trade in and out of only if the markets are really smooth.

‘This asset-liability mismatch is widespread and it is a disaster waiting to happen – remember what happened to funds of hedge funds in 2008,’ he warned.

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November 14, 2018