Alternatives Update – "Liquid Alternatives optimise the performance of active managers"

The current market environment is putting the capital investment of institutional investors to the test. In addition to the high volatility, a particular challenge for portfolio management is the unusually positive correlation between equities and bonds: Both asset classes fell equally in the downward phases of the historically bad investment year 2022. However, if bonds no longer help to hedge equity investments and thus reduce overall risk in a mixed portfolio, it might be time to rethink classic long-only strategies. The idea of relying solely on passive investments instead of active managers in the future and being content with market performance from the outset falls short of the mark. Professional investors should rather look at new strategies in the liquid markets. Liquid alternatives can be a sensible complement to long-term and illiquid investments in real estate, private equity and infrastructure. Similar to classic investment funds and ETFs, they are regulated and can be traded daily. Liquid alternatives are also freer in their choice of instruments and also use derivatives, such as options, to systematically collect attractive risk premiums, such as the volatility risk premium. "Liquid alternatives are interesting as an addition to the portfolios of professional investors because they represent a 'smart' beta component that can optimise the performance of active managers," says Carsten Hermann, Managing Director Investment Management FERI Trust GmbH.

Making strategic use of market turbulence

The combination of a passive mapping of an information-efficient stock market index and the forecast-free and consistent collection of the volatility risk premium can lead to a systematic outperformance and thus to an optimisation of the capital investment structure. With the OptoFlex strategy, FERI has been offering an extremely successful and award-winning investment solution for over ten years. "Volatility can be systematically integrated into investment management over the long term within the framework of an option premium strategy. The volatility risk premium can be identified as a constant source of return and diversifying asset class and is at an attractive level in the current market environment," says Daniel Lucke, Director Portfolio Management at FERI and responsible for the OptoFlex, US EquityFlex and Euro EquityFlex strategies.