Our Managing Director & Partner, Jeff Malec, recently shared his perspective on “What Allocators Look For in Evolving Managers” at an industry event, which led one audience member to say you should put that up in a blog. Voila.. Here you go:
The Evolution of Portfolio Construction
Gone are the days of the one-size-fits-all alternative investment that commands 20-40% of a portfolio. Today’s clients come with specific needs – whether it’s increased commodity exposure, energy plays, or hedged beta. We’re seeing a shift toward building “ensembles of ensembles,” and layering strategies to minimize manager-specific risks.
Pedigree vs. Track Record: It’s Complicated
While both matter, Jeff took a refreshingly practical stance on the pedigree question. “Without a track record, you better have pedigree… with a bad track record, don’t much care about your pedigree,” he noted. He shared some cautionary tales about traders who struggled outside their institutional comfort zones, (think an Oil trader who no longer gets the Oil Company storage numbers, or an FX trader linked into a bank’s currency flows) emphasizing that institutional backing can be both a blessing and a potential crutch.
The AI Conversation
On the trending topic of AI and machine learning, Jeff brought some healthy skepticism to the table. He joked about asking AI-driven funds to let their algorithms write their monthly updates – a suggestion that often makes managers uncomfortable. His preference? Seeing AI as a team multiplier rather than the sole decision-maker, particularly for operational efficiency rather than pure trading decisions.
On Multi-Strats
Are multi-strats too popular? Can they keep up the good work? Maybe. But Jeff also shared thoughts on allocators looking beyond a one size fits all multi-strat, and instead looking at sort of single sector multi-strats: say an energy trading pod shop, fund of long/short equity funds, and so on; where allocators can essentially create a customized multi-strat approach?!
Looking Ahead
Away from the Alts markets – Jeff shared he’s maintaining his (very wrong now…) skepticism on Bitcoin (although admitted he owns some as “dolt insurance”), and picked the Ravens over Lions for the Super Bowl, 38 to 31. .