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Are Institutional Investors Falling for AQR’s Liquid Alts Gimmick?

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Heavily pitched as a portfolio diversifier to traditional fund products, clever fund marketing professionals developed new solutions to entice institutional investors known as liquid alternatives (liquid alts). Since 2006, the number of liquid alternative mutual funds in the United States went from less than 20 to over 120 – counting funds reaching over US$ 50 million in assets under management. These liquid alts vehicles tend to charge higher fees compared to traditional products. In 2018, many liquid alternative funds felt tremendous pain in performance, especially after the “red October” equity fall. According to SWFI research, 2018 common pivots fund managers take when performance suffers is announcing a dedication of firm resources to artificial intelligence or pounding of the dream that we are “in it for the long-term.” Truly alternative products are meant to have low correlations to traditional assets.

One of the banner heads of the liquid alts business is Greenwich, CT-based AQR Capital Management, LLC. AQR is not the only asset manager offering liquid alternatives – other major firms include Schroders, Franklin Templeton, Goldman Sachs Asset Management, and Standard Aberdeen Investments. AQR’s CEO Cliff Asness is touted in numerous publications mentioning that liquid alts have seen tough times in 2018, but may be rewarded in being patient. Yes, institutional investors have a long-term orientation; however, should these institutional public pools of capital question if market neutral funds or so-called absolute return funds are really delivering on their promises? In recent years, many of these alternative risk premia funds, have performed worse than traditional equity indices like the S&P 500 or Russell 3000 index. Is moving money in and out of cash a better option, than alternative risk premia, when adding up fees and portfolio losses?

AQR’s selling point is its large academic base of employees, coupled with research papers submitted to a plethora of investment research journals. AQR touts its academic rigor, having 45% of its employees possessing advanced degrees, including 84 Ph.D.s, according to its website. Other quantitative firms use a similar marketing strategy or storytelling technique.

Asness wrote in his September 7, 2018 blog post called Liquid Alt Ragnarök?, “Recently, the quantitative factor-based liquid alts that we favor at AQR have had tough times. Every time any of our strategies go through tough periods, we take a step back and consider specific hypotheses as to whether the recent returns are a harbinger of the future. Has the world changed such that these strategies are now “broken”? Are they too crowded or costlier to trade now versus the past?”

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Antares Bain Capital Complete Financing Solution Backs symplr Deal

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On December 10, 2018, Antares Bain Capital Complete Financing Solution provided a senior secured unitranche credit facility for Clearlake Capital Group, L.P. to acquire symplr, a healthcare governance, risk, and compliance software-as-a-service platform from Pamlico Capital and The CapStreet Group. Golub Capital provided financing for the transaction as well.

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PSP Investments Exits Antelliq

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On December 14th, Private equity firm BC Partners, Public Sector Pension Investment Board (PSP Investments), and other minority co-investors have signed a definitive agreement with Merck, known as MSD outside the United States and Canada, to sell Antelliq Corporation, a Vitré, France-based provider of digital animal identification, traceability, and monitoring solutions. Upon close, Antelliq will be a wholly owned and separately operated subsidiary within the Merck Animal Health Division. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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JPMorgan Edges Out Hamilton Lane on Florida SBA In-State Mandate

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The Florida State Board of Administration (SBA) manages a plethora of Florida state funds, including the state’s defined benefit plans. Florida’s SBA awarded a private equity portfolio mandate which targets high-technology businesses in Florida to J.P. Morgan Asset Management. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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