During the first quarter, most alternative investors spent their time rebalancing their portfolios, redeeming with current managers, and waiting for the market to correct itself. This process freed up capital and uncovered gaps in portfolios, ultimately leading to a significant increase in alternative investment interest in the second quarter. Fixed-income strategies and volatility arbitrage were sought after, and experienced a significant boom in interest, as investors looked to take advantage of pricing inefficiencies created by rebounding markets (see Fig.1).
Fixed income
Fixed-income hedge funds are not typically a highly demanded strategy by institutional investors. Riskier investments that have exposure to equities, commodities, and alternative asset classes such as private equity and venture capital funds, usually dominate investors’ portfolios. However, the economic crisis of 2008 caused a flight to quality and many investors abandoned such strategies. Instead, they focused on high-quality, long-term fixed-income funds. Usually a core portfolio holding, fixed-income securities generally fall into two categories: preferred stock and debt obligations, which include bonds, variable annuities, and mortgage-backed securities. Investors’ goal was to protect and preserve their wealth.
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