The funds with alternative management seek an absolute performance disconnected from the evolution of the financial markets. Investment rules are flexible and management is highly speculative by nature. These funds are therefore intended for sophisticated investors.
Investor Profile: Investor saver who wants to save in the long run
Risk Level: Moderate to high risk (if leveraged)
Expected yield: Random yield (potentially high)
Random yield (potentially high)
Unlike “traditional” management strategies, alternative management has the main objective of achieving “absolute” performance. The fund manager does not seek to achieve, for example, a performance at least equal to that of a benchmark stock index, but seeks to achieve a positive return, regardless of market developments.
Even if AIF is regulated, the manager has considerable freedom regarding investment vehicles and techniques.
In particular, it is possible to use the leverage effect: this mechanism makes it possible to take a position on certain assets much larger than the amount actually invested. The objective is to increase the expected profitability of the operation (but, correlatively, the level of loss is potentially very high).
Alternative management strategies
There are four main alternative management strategies:
- the long / short equity strategy, which combines the purchase of undervalued shares and the short selling of stocks deemed to be overvalued;
- the event-driven strategy, which consists of choosing securities issued by companies in particular circumstances (merger, acquisition, restructuring, etc.);
- the arbitrage strategy, which seeks to take advantage of inefficiencies and market opportunities related to a price or rate disparity between two closely interdependent assets;
- the trading strategy, which seeks to exploit the major market trends.
Funds of hedge funds
Hedge funds are invested more than 10% in shares or units of foreign investment funds or French UCIs implementing alternative management techniques. These are the famous hedge funds.