Alternatives portfolios
Due to their unique characteristics, we are taking a differentiated look at liquid and illiquid alternative investments1.
Liquid alternatives
Equity long/short
In Europe, managers see a greater opportunity to add alpha due to lower stock correlations and greater dispersion. In the United States, the continued availability of cheap financing has meant that monetizing short positions has been more difficult.
Macro/CTA
Directional currency positioning has started to pay dividends. Within fixed income, the continued Crunchdown in rates is generating entry points to be short yields. Relative trades are becoming more interesting in equities.
Credit
Long/short credit strategies are benefiting from improved conditions for fundamentals-based approaches. Astute research by managers is, however, needed as many bonds continue to trade above par, limiting the upside against call risk.
Event-driven/relative value
Increased mergers-and-acquisitions activity has been driven by healthy balance sheets, improving confidence and access to cheap credit. Companies are seeking to acquire earnings, vertically integrate or geographically diversify.

Liquid alternatives
Illiquid alternatives2
Private equity
High levels of “dry powder” have continued to drive up asset prices in the United States, but opportunities remain in the small and mid-market segments. The impact of current European macroeconomic weakness may become clearer by year end.
Real estate
Expected initial yields will remain attractive relative to sovereign yields. U.S. property markets will benefit from higher GDP and a strong U.S. dollar will lower inflation risks. We would position European portfolios for the medium term. Rents are rising in Japan.
Infrastructure
Higher interest rates would provide a challenge for slower-growing utilities companies and investors are likely to want to focus on high-quality investments, given that government budgets remain constrained.
llliquid hedge funds
There remain interesting opportunities for longer-term strategies, particularly within activism, certain elements of structured credit, insurance-linked assets, secondaries, regulatory capital arbitrage and direct lending.

Illiquid alternatives