New Report Hypothesizes Global Flow Consequences

LAS VEGAS, May 6, 2013 /PRNewswire/ -- The final months of 2012 produced substantial asset shifts and anticipated high return for hedge fund investors while introducing new risk, return and tail-event characteristics, according to a new report issued by eVestment, a leading global provider of institutional investment data and intelligence solutions.  The Global Flow Portfolios Report, prepared exclusively for the 2013 Skybridge Alternatives (SALT) conference in Las Vegas, presents hypothetical scenarios inspired by the combination of recent investor flows and the trend among allocators towards increased portfolio exposure to alternative investments.

The report, compiled by eVestment's research team in New York City, is broken down into three main parts. The first part compares portfolios made up of alternative investment funds with the largest net inflows and those with the largest net outflows in the latter half of 2012. By assessing the aggregate exposures, the report details the risk and return characteristics investors assumed and eschewed heading into 2013. Part two of the report recreates the same scenario as section one, but uses portfolios comprised of traditional investment funds from the eVestment database. The final part of the report illustrates a portfolio's evolving characteristics as it transitions from being fully invested in traditional funds to a blended 50 percent traditional and 50 percent alternative allocation.  

The funds within the report were chosen from eVestment's traditional and alternative databases containing a combined 53,000 investment vehicles.  Using eVestment's Asset Flows product and eVestment's unique insight into hedge fund industry assets, 40 alternative and 40 traditional funds were identified as having experienced the largest net investor inflows and net outflows during the second half of 2012.  These portfolios were then modeled using the eVestment PerTrac Risk Plus product to quantify impact to risk and returns.

All told, a $34 billion shift of assets took place in the second half of 2012 just among 20 of the largest outflow and 20 of the largest inflow funds — a substantial movement when compared to the industry's overall net inflow of $3.1 billion during the same time frame. The top 20 alternative funds received combined inflows of $18.8 billion and the bottom 20 funds saw outflows of $15.2 billion in the second half of 2012. The top 20 traditional funds received combined inflows of $171.2 billion, while the bottom 20 funds experienced outflows of $131.4 billion during the second half of 2012.

Some of the report's key findings include:

• Whether or not by design, aggregated hedge fund inflows have been positioned for greater volatility, higher expected returns and increased tail-risks entering 2013.
• The largest allocations effectively and meaningfully increased hedge fund investor exposure to broad market movements heading into 2013, as determined by a 30 percent increase in the inflow portfolio's systematic risk.
• The largest allocations have been positioned to fair better should market shocks similar to those of prior crises reoccur, which is primarily due to an increase in credit exposure. However, the fixed income strategies which experienced the largest inflows underperformed during stress tests replicating the Global Financial Crisis.
• As hedge fund investments are gradually blended into a fully traditional portfolio, simulated scenarios showed an expected increase in return, decrease in portfolio volatility, VaR and tail-loss — all while increasing exposure to market volatility as a directional influence and adding currencies as a tactical allocation.

"This is the first of multiple reports we have planned using sophisticated exposure and risk simulation software with eVestment data to run a series of scenario analyses. We can fully engage and query the larger eVestment database for answers to critical performance questions our customers would want to know," report co-author Vice President, Research for eVestment Peter Laurelli said. "RiskPlus is a powerful tool for improving allocators' decision making capabilities in a controlled environment using a variety of data sources in a single platform."

The 35-page report is available for free by download through QR scan at the eVestment booth or by visiting www.evestment.com/SALT

About eVestment
eVestment provides a flexible suite of easy-to-use, cloud-based solutions to help global investors and their consultants select investment managers, enable asset managers to successfully market their funds worldwide and assist clients to identify and capitalize on global investment trends.  With the largest, most comprehensive global database of traditional and alternative strategies, delivered through leading-edge technology and backed by fantastic client service, eVestment helps its clients be more strategic, efficient and informed. The company was founded in 2000 and is headquartered in Atlanta, Georgia with global offices in New York, Toronto, London, Sydney and Hong Kong. eVestment recently acquired PerTrac, a leading provider of robust, hedge fund analysis software and workflow solutions, and Fundspire, an innovative, cloud-based technology provider of hedge fund analytics.

Contact: Jon Brubaker, 1-646-747-0156, [email protected]

SOURCE eVestment