Why Have Hedge Funds Underperformed?
By Hossein Kazemi

It is widely reported that hedge funds have performed poorly in recent months. The typical report focuses on broad indices of hedge funds such as CISDM or HFR hedge fund indices and uses the S&P 500 index as the benchmark. The following exhibit displays the performance of the CISDM Equally Weighted Index of all hedge funds that report to the CISDM/Morningstar database relative to that of S&P500 index.

 

An Introduction to Green Bonds
By Impact Investing Committee, NEPC

NEPC, LLC, a leading investment consulting firm takes a look at the burgeoning green bond landscape and lays out key issues that investors need to be aware of. Green bonds possess a label signifying that proceeds raised by the bond issue will be ear-marked or ring-fenced to fund projects intended to benefit the environment, with issuers agreeing to report on the use of proceeds. These terms are noted within the bond's issuing documents. This is the key factor differentiating green bonds from the rest of the fixed-income market; they are otherwise identically structured to their non-green counterparts. This article examines the unique characteristics of green bonds and their implications for investors who are interested in Impact Investing.

 

Inflation Hedging Abilities of Indirect Real Estate Investments in Switzerland
By Roland Hofmann, Tobias Mathis, ZHAW School of Management and Law Department of Banking, Finance, Insurance Zurich University of Applied Sciences

This article examines the inflation hedging abilities of Swiss indirect real estate investments. The authors focus on investment solutions that are appropriate for individual investors and offer insights on how real estate investments might protect private investors against inflation. The study concludes that indirect real estate investments in Switzerland do not provide such inflation hedging abilities. However, these findings could be affected by the special market structure in Switzerland and further study is warranted.

 

Studying Financial Disruption: Bubbles and Crashes – An Interview with Didier Sornette
By Barbara J. Mack

Didier Sornette, Professor and Chair of Entrepreneurial Risks at ETH Zurich (the Swiss Federal Institute of Technology) has devoted over two decades to studying bubbles and crashes, producing a book, Why Stock Markets Crash: Critical Events in Complex Financial Systems and numerous papers on the subject. This interview covers some of the main themes of his empirical research, the launch of the Financial Crisis Observatory (FCO) at ETH Zurich, and the development of the FCO Cockpit, a project that analyzes a vast array of asset classes, searching for evidence of bubbles or crashes in early stages of their formation.

 

The Ins and Outs of Investing in Illiquid Assets
By Thijs Markwat, Roderick Molenaar, Robeco

Investments in illiquid asset classes have become more common in recent decades, with notable growth in activity by pension funds in this space. Among the most widely known illiquid investments are hedge funds, real estate, private equity, and infrastructure. There are a number of reasons for their increase in popularity, including perceptions on expected returns and the benefits of broader diversification. However, it is not always clear if accepting the illiquidity delivers on these expectations. This article examines some of the key issues surrounding the pursuit of the illiquidity premium, including issues with finding trading partners, valuations and pricing, transaction costs, and legal impediments that may make it difficult to trade efficiently. Investing in illiquid assets introduces specific risks to any investor and education on the ins and outs of illiquid markets is strongly recommended.

 

Black Ice: Low-Volatility Investing in Theory and Practice
By Feifei Li, Engin Kose, Research Affiliates

Equity investors have endured two extreme market downturns since the turn of the century. These devastating experiences reawakened institutional and individual investors to the risks of market volatility and prompted great interest in low-volatility investing. However, with the emergence of new bull market conditions, low volatility strategies have languished and investors appear to be less cautious about risk once again. The authors of this article advise that it may be a good time to harvest some profits and revisit the benefits of lowvolatility approaches, including minimum-variance strategies, taking the impact on portfolios as a whole into consideration.

 

Concentrated vs. Diversified Managers: Challenging What You Thought You Knew About “High Conviction”
By Keith E. Gustafson, Patricia Halper, Chicago Equity Partners

The general rationale for concentrated portfolios suggests that investment managers cannot have equal conviction about a large number of stocks. Stock portfolios with many stocks and relatively lower tracking errors to benchmarks are often considered ”closet indexers,” and not worth active management fees or the effort relative to a taking a passive approach. This article assesses the properties of Active Share, a holdings-based calculation that measures the deviation of a portfolio from a benchmark in percentage terms. Original work on the subject provided evidence on the relationship between a mutual fund’s deviation from a benchmark and its excess return. While the approach found its way to plan sponsors’ toolboxes, this article offers a critique of the methodology and debunks some of the notions surrounding the notion that high Active Share (and/or concentration) necessarily results in higher excess returns.

 

VC-PE Index
By Mike Nugent and Mike Roth, Bison

Median returns for the industry were mixed during Q3 2015. In spite of this, venture capital’s momentum continues as median TVPI figures increased median figures for buyouts declined slightly.

 

The MSCI Global Intel Report
By Max Arkey, MSCI Real Estate

Global property held directly by private investors delivered a total return of 10.7% in 2015, representing the highest annual return since 2007. The cyclical and structural dynamics of real estate attracted a wave of capital that has propelled the asset class through a period of strong performance. Further, in recent years, record-low bond yields and financing costs have kept spreads attractive. This article highlights the atypical nature of this cycle, noting that while an inflection point may come eventually, for 2015, it remained illusory.