The unwinding of several high profile infrastructure funds in the recent past has prompted questions as to the performance of infrastructure assets/investments and the impact of the current credit markets, on the outlook for the sector.

Mercer remains positive on the long-term fundamentals for the infrastructure sector, especially in the emerging markets. Moreover, we believe that the credit crunch will likely provide the catalyst for differentiating between the capable and less capable managers.

This article examines the performance of infrastructure in the context of the state of today’s credit markets.

Over the last several years, institutional investors have more than doubled their allocation, to over $110 billion, to financial products whose returns are linked to those of commodity indices.

Commodities may be attractive due to the low correlation between the returns of commodities and those of other asset classes, the high correlation of commodities returns with unexpected inflation, or the rising demand for commodities from fast growing emerging markets countries, such as China and India.

This paper is hosted by permission of www.ennisknupp.com

How do current market activities, regulatory changes and dislocations potentially impact the ability of hedge funds to prosper going forward? The huge changes occurring in the markets are having a significant impact on hedge funds, including short sale restrictions, disclosure requirements and the effective elimination of the investment banking model and its attendant impact on sources of funds to provide leverage and liquidity.

Current and potential hedge fund investors should be aware of changes in the market and should monitor investments closely, including asking additional questions of their hedge fund managers and gathering vital market and regulatory information. Fiduciaries should not take a “wait and see” approach, but should pursue key information in order to make prudent decisions.

Over the last 12 months global financial markets have undergone major corrections following, fundamentally, a break-down in the confidence and trust in the financial system as practiced by the Western world.

Along with this break-down we experienced a steep fall in US housing prices, the nationalization of financial institutions, the forced merger and/or failure of several large financial institutions in the US and Europe, and a global credit freeze.

The crisis has led us into an economic recession.

 

Activist investing is an investment approach whereby an investor seeks to influence the strategy of a company. Strategy may be very broadly defined to include acquisitions, divestitures, capital structure, dividend policy and board composition, inter alia.

We see two broad aspects of this strategy that may exist separately or together. First, activist investing may seek to remedy conflicts of interest in corporate governance. Secondly, it may be seen as a derivative strategy of value investing that attempts not only to identify undervalued companies, but also to engage those companies to pursue actions that will realize shareholder value.

We believe activist strategies should be considered as a part of investors’ equity portfolios.

Alpha is shrinking, and it’s good news for investors. This idea may seem paradoxical. But alpha is really just the portion of a portfolio’s returns that cannot be explained by exposure to common risk factors (betas).

With the emergence of new betas, the unexplained portion (alpha) shrinks – alpha gets reclassified as beta. The rise of a group of risk factors we call hedge fund betas makes this transformation especially relevant today. Hedge fund betas are the common risk exposures shared by hedge fund managers pursuing similar strategies.

We believe these risk factors can capture not just the fundamental insights of hedge funds, but also a meaningful portion of their returns. Hedge fund betas are available for investment and can also be used to enhance portfolio construction and risk management.

Ultimately, we believe the rise of hedge fund betas will lead not only to the reclassification of alpha, but also to better-diversified portfolios with greater transparency, improved risk control, and – perhaps most importantly – higher net returns.