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Article

Alternative Assets: Are They Still Worth It?

Jean L.P. Brunel and John T. Elmes
The Journal of Wealth Management Fall 2012, 15 (2) 49-61; DOI: https://doi.org/10.3905/jwm.2012.15.2.049
Jean L.P. Brunel
is chief investment officer at GenSpring Family Offices in Jupiter, FL.
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  • For correspondence: jean@brunelassociates.com
John T. Elmes
is head of investments at GenSpring Family Offices in Jupiter, FL.
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  • For correspondence: john.elmes@genspring.com
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Abstract

Though the authors strongly believe that so-called “hedge funds” are not an asset class but a fee structure, they observe that investors tend to look at them generically. Their performance in the past few years has raised a number of questions. Performance in 2008 and subsequent years, for instance, has suggested that downside protection may be less than expected; that liquidity may be less than anticipated; or that absolute returns may in fact be negative! The authors compare the returns of three generic strategy groups to traditional asset benchmarks and initially find that alpha, defined as a non-beta-adjusted excess return vis-à-vis that benchmark, has really not been positive over the last several quarters. They then define a segment of the broad universe in each of the three strategy groups using objective criteria—minimum size and length of reported track record—and re-do the foregoing analysis. They find that, though the screening process eliminates as many as 95% of all managers, it still contains between 50% and 70% of the assets managed in these strategies. They also find that the rolling alpha generated by the selected group of managers is actually considerably higher than for the universe as a whole. They conclude that the industry has matured, and that, with maturation, comes some alpha dilution; yet, though the industry as a whole may no longer benefit from the tail winds it enjoyed for a long time, there remain a number of strategies and managers where material value added is available. This will place an increased premium on manager selection.

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The Journal of Wealth Management: 15 (2)
The Journal of Wealth Management
Vol. 15, Issue 2
Fall 2012
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Alternative Assets: Are They Still Worth It?
Jean L.P. Brunel, John T. Elmes
The Journal of Wealth Management Jul 2012, 15 (2) 49-61; DOI: 10.3905/jwm.2012.15.2.049

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Alternative Assets: Are They Still Worth It?
Jean L.P. Brunel, John T. Elmes
The Journal of Wealth Management Jul 2012, 15 (2) 49-61; DOI: 10.3905/jwm.2012.15.2.049
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  • Article
    • Abstract
    • REVISITING THE ALPHA OF ALTERNATIVE MANAGERS
    • THE INDUSTRY HAS MATURED
    • A SCREENED DOWN SET OF UNIVERSES
    • CONCLUSION
    • ENDNOTES
    • REFERENCES
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