Looking at the individual product strategies, the clear star early in the alternatives story has been absolute return funds. In this post-financial crisis era, with low interest rates, high risk anxiety and demand for low-risk, high income-generating products, many of the absolute return strategies offered in the market seem to fit the bill. Indeed when the other distinct alternative strategies – global macro, market neutral, event-driven, long-short – are stripped from the numbers, absolute return has maintained a fairly consistent level of two-thirds of the total assets under management dating back to the 2008 pre-crisis numbers.
The lower-risk absolute return strategies denominated in dollars and euros have $76bn (£50bn) and $50bn (£33bn), respectively, and consumed nearly 40 per cent of the total $330bn (£216bn) invested in absolute return strategies through quarter one of 2013. Only market-neutral strategies at $40bn (£26bn) of assets under management manage to muscle their way into the dominant numbers attained by absolute return products.
A similar story emerges on the flows front, representing new fund sales, with absolute return funds garnering a consistently high proportion – generally 70 per cent – of new flows in the past few years and as much as 90 per cent in recent months. As the field of product offerings continues to develop, it is likely absolute return products will soon share the stage with other offerings, particularly those with hedge fund origins. As they gain a footing on retail shelves, all alternative products will likely go through an evolution of acceptance, which is already underway.
To get a closer look at this evolutionary process it might be helpful to drill down further into an alternative product in a given market. The European alternatives space reflects the embracing trend of absolute return products, but the romance has had its ups and downs. The popularity of absolute return funds in general has risen dramatically, to the point where they compete among the top new flow-generating strategies in the market.
In 2012 an absolute return fund was the fifth highest-selling fund, behind four bond funds. Nearly all major long-only managers in the European region now offer these products in their line-ups. Absolute return funds are being brought to market by traditional shops and hedge fund firms alike. They run the gamut from bond-oriented to equity-focused to more hedge fund-like strategies. This diversity of management and fund construction styles has caught the attention of, and brought further review from, associations and industry watchers as the search for an agreed-upon definition for absolute return products takes place.
