William Kelly, CEO, Chartered Alternative Investment Association
The very first days of 2016 have already tipped the hand of the equity markets, showing increased selling pressure due to geopolitical risks, commodity prices, China and an overall decline in the earnings outlook.
The bond market, which has seen a bit of a rally in the 10-year space due to demands associated with a flight to quality, will inevitably continue to see downward pressure as the Fed commits to measured steps in rate increases for the first time in over a decade.
The questions: What is the average money manager to do in 2016? How will regulators respond as asset owners increasingly look toward alternative sources of beta, primarily in the liquid alternative space?
The regulatory emphasis will continue to be on the availability of liquidity, and at what price. The quoted bid is not always the market price particularly in times of stress.
The SEC has recently proposed a comprehensive package of liquidity rule reforms including a concept of “swing pricing” whereby some of this liquidity risk could be priced into the fund’s NAV to reflect individual shareholder trading activity, subject to fund board approval.
These same fund boards should also brace themselves for more regulatory face time in the wake of the recent gating of a certain high yield fund; these watchdogs better be able to bare some teeth on behalf of the shareholders for whom they work.
These shareholders in turn could benefit from greater investment literacy.
Just because a fund is liquid, should not mean a rush to liquidity every time Atlas shrugs.
While unlikely to be a theme in 2016, some basic concepts around market timing, diversification, and a long-term investment horizon in line with many of our liabilities, need to be taught.