Alternative strategies adapt to survive: Zenith

Zenith has released its 2010 Alternative Sector review, revealing a strong post-GFC performance from alternative funds that were able to adapt to the new challenges presented.

The review features 31 funds, of which two were highly recommended and seven recommended, while four ratings were pending the release of final product disclosure statements.

“There have been a range of new products introduced together with a limited few existing offerings that have tackled the existing problems and have addressed these issues in a range of ways,” said Zenith’s head of research Ben Davis.

“These include offering more fee conscious, liquid, transparent offerings where the portfolio construction settings have been revised from what is considered to be the convention. The funds added to Zenith’s recommended list in the Diversified Alternatives sectors have adopted all or some of these characteristics,” he said.

A key reason for the failure of many hedge fund of funds in the retail sector was excessive fee structures, which could include fees paid to the multi-managers as well as hidden fees paid to the underlying managers.

Hedge fund of funds that had too many underlying fund exposures, were inflexible or were unable to deal with illiquidity and market risk were also more likely to have failed, Davis said.

The commodity trading advisers or managed futures sector had been a standout in terms of performance and the liquidity it provided during the financial crisis, with four included in this year’s review, he added.