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Alternative Investors Favouring Macro, Distressed Strategies

by Phillip Morton, Investors

12 December 2008

The Greenwich Roundtable and Quinnipiac University have released the findings of their second "Survey of Investor Preferences" toward alternative investments among private and institutional investors.

The survey, jointly developed by the Greenwich Roundtable and the School of Business, was designed to capture the mindset of the alternative investment community in light of the recent credit crisis and market turmoil.

"The behaviour and preferences of alternative investors is now an early warning system for market action and we are seeing some interesting strategy preferences emerge," said Steve McMenamin, executive director of the Greenwich Roundtable.

"Investors are obsessed with liquidity and the liquidity of their hedge fund investments," said Matthew O'Connor, interim dean and professor of finance in the School of Business and head of the Alternative Investments Institute. "Cash is now king and even good hedge funds are getting redemptions."

The findings of the current Quinnipiac University-Greenwich Roundtable survey fall into three broad categories: allocation to alternative investments, portfolio construction and overall market sentiment. Key findings of the survey include:

Asset Allocation

  • 22% of respondents lowered their allocations to hedge funds.
  • 23% of respondents added to their allocations to distressed and global macro strategies.
  • Over a third of respondents intend to add to global macro strategies and trend following CTAs.
  • 25% of respondents decreased their allocation to long-short equity strategies.

Portfolio Construction

  • Two-thirds of participants increased overall portfolio liquidity by raising cash.
  • Close to one-quarter of respondents noted that liquidity concerns and managers' redemption terms were factors in portfolio reconstruction.
  • Managers are limiting redemptions 80% more frequently than they have in the past.
  • About 60% of investors said market conditions caused them to reduce portfolio risk. Mechanisms included raising cash, reducing exposure to equities, and decreasing leverage.

Market Sentiment

  • Over 45% of investors were bullish on the US dollar and gold.
  • Approximately three-quarters of participants were bearish on the Euro and European stocks.
  • More than 50% of members were bearish on European bonds, emerging bonds, US stocks and US bonds.
  • Fifty three percent of respondents were bearish on venture capital and 50 % were bearish on private equity.
  • About 60% of respondents were concerned about the health and viability of the overall US financial system.
  • Nearly 55% of participants expect a minimum of six-to-12 months before the housing market bottoms.

The Greenwich Roundtable and Quinnipiac University plan to repeat their surveys of sophisticated investor attitudes toward alternative investments every two months. The next survey is expected to be released in late January.

The Greenwich Roundtable is a not-for-profit research and educational organization located in Greenwich, Conn., for investors who allocate capital to alternative investments. Its members collectively represent more than USD6.4 trillion in assets under management.

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