Diversifying strategies through cost-effective solutions

Asset classes and strategies come in and out of favor with institutional investors in response to changing market conditions and more importantly, the changing risk profile of their portfolios. What looked like the silver bullet for compelling returns just a few quarters ago may not deliver the downside protection or return enhancement today. What does not change, though, is the need for an institutional portfolio to have exposure to a broad spectrum of uncorrelated risk factors. Diversification is the one strategy that never goes out of fashion, and for that, LGT Capital Partners' hedge fund solutions are a powerful tool.

We help investors diversify portfolios by providing access to a wide range of liquid alternatives strategies that offer downside protection in turbulent markets, as well as generate stable returns over the long haul. We distinguish among three groups of strategies: alpha generation, style premia and defensive.

Alpha generation: We believe that talented managers have the ability to tap into a diverse set of alpha sources through fundamental strategies, such as long/short equity, event driven or relative value. Economic cycles at different stages across regions, the divergence in central bank policies, an increase in markets’ volatility, geo-political factors, changes in the global trading landscape and so on create an attractive opportunity set for alpha seeking strategies. We focus on the selection of best-in-class managers and invest mostly through managed accounts

Style premia: These strategies offer access to return sources, which are complementary to alpha return streams. There is extended empirical evidence that these strategies – value, carry, momentum/trend – are offering attractive diversification benefits long-term. Within this segment, we invest in both external and internal strategies

Defensive: This group encompasses liquid strategies, which can offer protection during more volatile markets by taking advantage from a “flight-to-quality” type of scenario. We rely mostly on internal strategies that have been developed over the last years

We believe that innovation plays a pivotal role in shaping successful investment strategies. In recent years, innovative strategies have been predominantly emerged in the realm of quantitative strategies and we are investing in strategies managed by high-quality, sophisticated quant teams. In the same vein, we have also built internal resources in the quantitative area. One team in particular is managing an innovative, AI-based strategy.

News-based Trading: This systematic investment strategy forecasts market movements with financial news as its only input and trades futures on the major equity indices based on these forecasts. The strategy applies a natural language processing system to screen and score tens of thousands news items per day from hundreds of news outlets and a nonlinear dynamic model to calculate investor sentiment from the scored news. The daily target long/short exposure is then determined using machine learning algorithms.

All these different strategies can be blended in mandate solutions, where the risk/return profile of the portfolio can be tailored to the specific needs and requirements of the investor.

Our managed account platform – providing access to more than 50 carefully vetted managers - has the advantage of cost efficiency and transparency, two concepts that are not often associated with hedge fund investing. The cost efficiency comes from the fact that we have negotiated preferential terms with managers, owing to our long history in the market and the capital that we consistently supply. We are able to pass this savings on to our investors, who gain exposure to innovative strategies from seasoned teams at fees that are typically lower than the managers' flagship offerings. Our platform also provides full look-through on what positions managers are taking, allowing for transparency on what has often been an opaque area of investing.