US-based fund house Columbia Threadneedle is considering launching Ucits liquid alternatives products for individual investors in Asia Pacific and Europe, and is also targeting what it sees as growing institutional demand for alternative beta, which employes long/short strategies.
There is an urgent need to expand the range of liquid alternatives available to individual investors, as the firm has already done for institutions, said Bill Landes, Boston-based head of alternative investments and deputy head of investment solutions. Alternatives currently account for 2% of Columbia Threadneedle’s $471 billion in AUM.
The asset manager declined to give a timeframe for when it might launch liquid alternatives in Ucits wrappers; it already offers such products in the US as 40 Act vehicles, which are subject to different constraints. Hence they perform differently: the past 12 months have seen Ucits hedge funds fall by -0.98%, while 40 Act products have lost -3.04%, according to Preqin data.
Liquid alternatives seek to incorporate strategies, such as hedge fund, private equity or real estate exposure, into vehicles with lower fees and sufficient liquidity and transparency for the retail market.
They have been attracting a lot of interest, particularly from private banks and increasingly from institutional investors, but have drawn some criticism. One argument is that the constraints on such products mean they are likely to underperform traditional hedge funds. There are also concerns over seeking to put fundamentally illiquid assets, such as private equity or real estate, within liquid strategies.
Meanwhile, Columbia Threadneedle has increased the number of alternative beta factors it trades, adding three since June this year to bring the total to 28. These factors include momentum, short-volatility, curve and carry strategies across multiple asset classes. The firm declined to comment on what the three new factors are.
Columbia tips growing demand for alternative beta strategies, particularly among institutions. “It is very clear to us that institutional demand is going to start growing exponentially,” said Landes, citing significant interest in markets such as Australia, China, Korea and Singapore.
He argued that institutional investors with hedge fund exposure are seeking to understand better their factor or alternative beta exposures and to use specific strategies to fill gaps in factor exposure to dampen portfolio volatility.
In turn, he noted that those without hedge fund exposure were looking to alternative beta to build low-cost, "synthetic" hedge funds. Landes said alternative beta strategies charged a quarter of the fees of multi-strategy hedge funds or funds of hedge funds but delivered similar performance.
Most of Columbia Threadneedle’s alternative beta strategies are based on global risk premia factors and are typically country- and sector-neutral. There are some exceptions, such as a short-volatility strategy referencing the US's S&P500 equity benchmark.