"Absolute returns de-mystified"

Sector Asset Management hosts an exclusive presentation by Alexander Ineichen in our offices on May 3rd.

Absolute returns de-mystified

Alternative investments in general and hedge funds in particular are still not fully de-stigmatized by many investors despite the fact that their inclusion in balanced portfolios has proven their merit at least twice during the previous decade. The purpose of this series of presentations is to demystify some of the myths and misconceptions still surrounding alternative investments. An “alternative investment” is essentially an investment that has not yet gone mainstream.

It is no secret that the public image of so-called “alternatives,” (e.g. hedge funds, vulture funds, private equity), is far from pristine. Hedge funds are regularly blamed for market movement, often irrespective of their being involved in a concerted fashion. Vulture funds are in the news for ”helping” Argentina with its debt-issuance, and private equity firms are often taken to task for the externalities left behind from corporate reorganization. Generally speaking, alternatives are perceived as risky.

Every investment, when viewed in isolation, is risky. This is true for any single investment, be it stocks, bonds, hedge funds, farm land, art, etc. However, most investors do not hold a single investment; most investors maintain portfolios comprised of single investments.

The basic idea of portfolio management and portfolio construction is to diversify single entity risk. From this perspective, when risk matters, there is hardly a reason for the bulk of the whole portfolio not being in what we today call “alternatives.”

There is still a lot of myth with respect to alternatives being risky. Much of it is built on anecdotal evidence, oversimplification, myopia, or simply a misrepresentation of facts. Hedge funds aim for absolute returns by balancing investment opportunities and risk of financial loss. The same logic is applicable to constructing portfolios with alternatives. Where a single investment might be “risky,” it is the combination of different risks that makes a portfolio less sensitive to accidents and losses. Diversification might be the only free lunch in finance.

Alexander M. Ineichen

Alexander Ineichen is an internationally recognised and independent researcher of alternative investments and sought-after advisor on risk management. He is founder of Ineichen Research and Management AG, a research boutique focusing on absolute returns, risk management and thematic investing. Alexander Ineichen is best known for his 2000 research publication “In Search of Alpha – Investing in Hedge Funds” and his book “Absolute Returns.” 

The presentation is by invitation only. Please contact us if you would like to receive an invitation.