Aberdeen plans ‘liquid alternatives’ launch

Water tap stopAberdeen Asset Management plans to launch hedge fund strategies in Europe within the Ucits framework by the end of the second quarter (Q2).

The “liquid alternatives” range, which will eventually go global, will include long-short equity and macro strategies, says Andrew McCaffery, global head of alternatives at the company (reported in Funds Europe April issue).

“The portfolio will start with six to eight managers, but is likely to be eight to 12 over time, all in managed accounts. We will offer daily liquidity and target diversification to equities and bonds.”

The portfolio aims for a higher level of global macro than many other similar product sets.

“There will be a degree of long-short equity and credit, but there will be a higher level of global macro, both discretionary and systematic and relative value, than many competitor products.”

McCaffery also says Aberdeen is likely to introduce market-neutral equity over time and blend in event-driven strategies, if or where possible.

‘Liquid alternatives’ is a term rising to replace ‘Newcits’, or ‘alternative Ucits’, in describing alternative strategies in the regulated Ucits regime.

“Institutions are looking at liquid alternatives now, mainly as they are regulated, liquid and transparent products. In the US you find these in ’40 Act funds and in Europe as Ucits funds,” says McCaffery.

He says these types of liquid strategies are “perhaps not old-style, offshore fully unconstrained hedge fund strategies, but they do offer diversified return streams that can differ from traditional equity and bond return profiles”.

The rise of defined contribution (DC) pension funds is a driver for liquid alternatives, McCaffery says, though he acknowledges institutions are prepared to invest in less liquid investments for the potential of higher returns.

“Institutional investor allocations continue to increase in alternatives, and that increasingly includes less liquid assets like private markets, property and infrastructure. When looking at a DC product, to offer direct access to these areas, without a significant liquidity mismatch, is very difficult.

“Many pension fund allocators are allocating more to illiquid assets and see the value in having assets locked up for the longer term, to extract a significant premium. Aligning investor and manager interests is key for the long term, and we are seeing more focus on incentive fees for long-term success, and trying to lower ongoing costs, for example, management fees and transaction costs."

Aberdeen has a range of alternative funds, including outside of the Ucits regime, domiciled in the Cayman Islands, Ireland and Luxembourg, but the liquid alternatives range will be domiciled in Ireland.

Asked for more details about the investment strategies, and if activist strategies, which have attracted flows in the hedge fund industry lately, will be included, McCaffery says: “The key element is remembering the underlying liquidity need. Event-driven strategies can be quite liquid in terms of merger arbitrage and special situations. But at the activist level the real value is in the illiquid opportunity.”

He says Aberdeen’s range of alternatives will consist of regulated products and customised portfolios for a range of investors, with many institutions seeking a specific outcome from their larger allocations.

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