External alternative multi-management portfolios

LONG SHORT EQUITY

We are positive on this strategy, in which we continue to look for managers that perform on long and short. We have reduced managers with high net exposure. We recently added a technology fund from the west coast and two European L/S managers: one based in France, the other in Norway. We continue to be positive on the strategy given the comfortable level of dispersion in some markets. Nevertheless we remain very mindful of possible further exogenous risks and keep our focus on managers with a reduced net exposure.

Europe seems more compelling in terms of valuation and central bank actions, on the back of the recent QE measures and some positive signs of economic growth.

Asia is also benefiting from strong technical backdrop and a supportive monetary policy.

GLOBAL MACRO

As long-lasting trends are challenged by the discrepancies within the various Central Bank policies, and potentially could put an end to the 20-year bond rally, the strategy could suffer. Long-lasting trends are challenged by the discrepancies within the various Central Bank policies. This is also impacting FX markets while commodities continue to be difficult markets to navigate ; the backdrop for macro managers as such is rather challenging and we have minimal exposure in that space.

QUANT STRATEGIES

Some specific Systematic strategies have been powerful contributors in recent months on the back of trends across oil, rates, FX among others. In the market-neutral quantitative arbitrage space, performances continue to be positive, albeit weaker than over the past couple of years. We are looking closely at some factors (value, momentum, growth), as this space has become too crowded through both alternative strategies and 130/30 long-only products. Depending on trading time horizons, trend followers are benefiting from the current environment.

FIXED INCOME ARBITRAGE

The opposite direction taken by ECB and BOJ with their QE while US is ending its program has triggered an increasing volatility within the fixed income space. Relative value managers have and should benefit from it for 2015.

EMERGING MARKETS

Emerging markets continue to be a mixed bag

• The transition towards economies driven by domestic demand is only just getting started, especially in China. We are seeing positive signs from the changes in monetary policy and anti-corruption actions in China. We may add some exposure to the country through on-the-ground managers.
• Of course, the situation differs greatly from country to country. In some cases, key rates oversight is very effective, while other countries that are highly dependent on foreign-currency funding sources are being stretched to the limit due to cash repatriation.
• Although this contradictory situation can also be seen in equities, high-quality stock-picking can still be profitable.

RISK ARBITRAGE - EVENT DRIVEN

• While we believe that this strategy continues to make sense, its net long bias may put it at risk in cases of strong market disruptions. If the M&A volume in 2014 has hit its best year for deals by value since 2007, it seems that 2015 is on its way to breaking those figures, on the back of strong activity in the healthcare, tech and telecom sectors.
• This being the case, we prefer to focus on US managers with a diversified foothold in both equity and credit deals, with a combination of hard and soft catalysts. We are closely monitoring interest-rate levels as access to credit is key to financing deals.

DISTRESSED

The distressed debt offer is still extremely limited for the time being. We do not see any immediate opportunities in this strategy. Nevertheless, the energy sector where massive issuance has taken place over the recent years may soon become an attractive pool of opportunities given the massive disruption in oil prices and its impact on these securities.

LONG SHORT CREDIT & HIGH YIELD

Demand and flows have reversed strongly especially on the US high yield.

• We are less active in this space as we are more in favour of equity related strategies. We prefer managers looking for idiosyncratic investments. One of our managers in that space has clearly taken a more bearish positioning over the asset class through put options in the recent weeks.