Looking for Alpha, Investors Target Asset Backed Lending Funds
As we enter the second quarter, liquidity remains one of the most important fund characteristics being sought by investors in 2009. However, investors also are seeking alpha and, therefore, certain less-liquid strategies are proving popular. One of these is asset backed lending (ABL) funds. Credit markets are beginning to thaw, however, traditional lending sources remain for the most part stagnant. Certain segments of the investor database recognize the long-term potential of ABL funds in comparison to CTA or macro funds.
ABL fund managers have the opportunity to produce higher amounts of alpha than do managers of other fund types. One Swiss fund of funds is searching for ABL funds with unique deal structures or very specialized focuses, such as funds with exposure to the film industry, physical commodities, timber, or the shipping & transportation industry. The fund of funds felt that through such unique exposures, a manager’s ability to produce alpha would be readily apparent, and from that the fund could properly evaluate the manager’s prospects for performing well in the future.
A Tokyo-based fund of funds remains committed to investing in ABL funds as well. The firm, which is in an early stage of fund due diligence, is looking for ABL funds for what it considers to be a “structured alpha” investment. Believing that funds can produce high amounts of alpha over and above set benchmarks, the fund of funds is looking for globally diverse funds to include in their alpha-generating portfolio.
While daily and weekly funds remain extremely popular with investors, asset backed lending funds that can produce excessive amounts of alpha are also attracting attention from investors with longer return timelines. These investors remain convinced of the potential of such funds. For ABL funds that have a respectable track record, and have strong prospects for producing alpha in the future, now is the time to double the effort on identifying the investors that have the appetite for such a fund type.