Why Liquid Alternatives Now

K2 Advisors’ Founding Managing Director David Saunders is speaking at the prestigious SALT conference this month in Las Vegas, where he’ll discuss the liquid alternatives landscape and why he thinks now’s the time for investors to consider this asset class. He believes the macro environment appears to be setting up well for certain hedge strategies within this space.

K2 Advisors seeks to add value through active portfolio management, tactical allocation and diversification across four main hedge strategies: long-short equity, relative value, global macro and event driven.

Truth be told, 2016 was not a stellar year for hedge funds, as unceremoniously summed in this headline from The Economist on December 19, 2016, “Multi-manager hedge funds lost cash, cachet in 2016.”

That said, a new leaf seems to have been turned this year with hedge funds returning to positive flows in the first quarter of 2017.1 Renewed interest has been spurred by the election of Donald Trump as president of the United States, which some industry experts are predicting should bring meaningful tax reform, deregulation and infrastructure spending that we think could prove a boon to hedge strategies.

While we are in the early days of this new administration and Trump’s presidency has already faced some challenges, we are optimistic about the future of the hedge-fund industry. We think many strategies could perform better this year, as increased volatility and dispersion among equities (generally a good thing for hedge-fund managers) should persist, reversing a multi-year trend.

Furthermore, with US equity markets reaching new highs and the interest-rate environment looking negative for bonds, we believe investors will seek out product offerings from alternative managers that can offer access to alpha2 across alternative asset classes.

Below, we have highlighted a few key macroeconomic trends and themes we have been following at K2 that we feel may be of interest. But before we get into those, we think it is important to take a step back and assess how we got to where we are today.