Alternative Investment

With volatility a constant, hedge fund managers excited by alpha prospects in 2023

The previous year “was quite a good one for hedge funds and alternative investment strategies,” said Jordan Brooks, co-head of macro strategies at AQR Capital Management LLC, Greenwich, Conn., in an interview.

In 2023, Mr. Brooks expects macro strategies to do continue to do well, noting that “markets are pricing 2023 based on the expectation of a Goldilocks environment,” he added.

“Markets seem complacent and are pricing in a very benign environment in 2023, including a smooth, swift disinflation, relatively lower interest rates, accommodative central banks and lower volatility,” he said.

AQR managed a total of $100 billion as of Sept. 30.

Systematic trend specialist manager Aspect Capital Ltd., London, posted a strong year in 2022 and is likely to do well in 2023, said Martin Lueck, co-founder and research director.

“Uncertainty is something we haven’t seen for a long time. Uncertainty creates opportunities for trend followers. The monsters under the bed, the table, etc., aren’t going away in 2023. We’re likely to see diverse inflation environments globally and we are beginning to see structural weaknesses in areas like special purpose acquisition companies and real estate to take advantage of,” Mr. Lueck said.

“We designed our portfolio for this kind of environment,” Mr. Lueck said.

Among the opportunities Aspect sees are divergent reactions to inflation globally; higher interest rates; geopolitical tensions; and energy shortages in Europe, all amid a backdrop of deglobalization, Mr. Lueck said. Aspect managed $10 billion as of Dec. 1.

Bryan Smith, Seattle-based head of BlackRock Alternative Advisors who oversees the firm’s hedge funds-of-funds business, said in an interview that the company’s approach in 2022 worked well for the firm’s investors because “in general, hedge funds protected the downside and offered diversification in 2022. They did what they were supposed to do.”

Among the strategies the funds-of-funds team is considering for investment in 2023 are volatility arbitrage, fixed-income value and relative value, Mr. Smith said.

BlackRock managed a total of $29 billion in hedge funds-of-funds as of Sept. 30.

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