Liquid alternatives underperformed hedge funds for the second consecutive month in September.

The Wilshire Liquid Alternative Index returned 0.1%, compared with the HFRX Global Hedge Fund Index’s 0.6% return. Liquid alts finished the third quarter up 1.4%, and are up 2.3% for the year to date.

The relative value sub-index, comprising credit, convertible arbitrage and volatility funds, was again the top performing, finishing the month up 0.3%, 16 basis points behind the HFRX relative value arbitrage index. Relative value ended the third quarter up 2.4%, and through September was up 4.4%.

Credit managers contributed 30 of the 34 basis points to performance, benefiting from relatively stable investment-grade credit spreads and from a slight tightening of high yield spreads.

The equity hedge sub-index, which includes long/short equity and market neutral funds, gained 0.2% in September, underperforming the HFRX equity hedge index by 134 basis points. Equity hedge was up 1.6% for the third quarter, and up 0.9% for the year to date.

Long-biased equity managers turned in mixed performance as gains from healthcare-sector-focused funds, covered call strategies and fundamental long/short strategies offset losses in value-oriented strategies. Market-neutral strategies were generally also mixed in September.

The event-driven sub-index of credit, merger arbitrage and special situations funds gained 0.3% in September, outperforming its HFRX counterpart by 22 basis points. Event-driven managers, who reported a third-quarter return of 1.9%, are up 2.8% for the year.

Merger arbitrage strategies contributed 15 basis points to the index performance in September, while long-biased corporate credit strategies continued to benefit from the recovery in the high yield credit markets, added another 16 points. Multi-strategy event managers chipped in five points.

Systematic, discretionary, commodity and currency funds in the global macro sub-index ended September down 0.5%, underperforming the HFRX macro/CTA index loss of 0.2%. Global macro had a losing third quarter, down 0.9%, but was up 0.5% for the first nine months of the year.

CTAs in September suffered from trend reversals in energy prices and fixed income. Systematic CTAs had a rough time navigating choppy markets, contributing 43 of the 46 basis point loss on the month. Discretionary managers had it easier, losing only three basis points.

The multi-strategy sub-index of single and multimanager funds returned 0.1% in September, ending the third quarter up 1.5%.

The Wilshire Liquid Alternative Index family is a joint offering between Wilshire Funds Management, the global investment management business unit of Wilshire Associates Incorporated, and Wilshire Analytics, creator of the Wilshire 5000 Total Market Index.

Asset Flows

Wilshire reported that 12 liquid alt funds were rolled out during the third quarter, including eight equity hedge funds, two relative value funds, one event-driven and one global macro fund. Twenty-four funds were liquidated.

Overall assets under management in the liquid alt universe decreased by $4 billion overall to $300.7 billion, according to Wilshire.

Net outflows during the quarter amounted to some $8.3 billion. Global macro funds stood alone as the only sub-strategy to experience net inflows, $2.2 billion.

All other sub-strategies had net outflows, amounting to a combined $10.5 billion:

  • Relative value:  $5 billion
  • Equity hedge: $3.3 billion
  • Multi-strategy: $1.4 billion
  • Event-driven: $800 million


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