Since the global financial crisis, the landscape for absolute return strategies has undergone significant changes, influencing investor attitudes. Polina Kurdyavko, Head of BlueBay Emerging Markets, discusses the resurgence of these strategies and the strategic approaches used to navigate market volatility.
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Since the global financial crisis, investors have had a more cautious approach to absolute return funds. This is not surprising given the change in regulations, large drawdown that we experienced during the 2008 financial crisis, and the need for more transparency. We feel that this is changing, and absolute return funds are back in vogue. When we think about investing in alternative funds, it's important to differentiate what type of exposure an investor would like to have. We can see on one hand a long bias exposure, which has a longer time horizon, and generates consistent stream of returns from the underappreciation of the asset or excessive liquidity premiums.
Alternatively, we see strategies that generate return from volatility. At RBC BlueBay, we do both. Often we hear from our clients that they like the absolute return strategies, but they're not too positive on credit or emerging markets at this point in time. As an investor, if you decided to choose strategies that generate performance from volatility in this asset class, you don't have to have a positive beta view on the asset class. You have to have a positive view on the volatility in the asset class and the opportunity set. Whether it is COVID pandemic, Russia-Ukraine war, geopolitical escalations in the Middle East, we can generate positive return from these events.
Therefore, at BlueBay, we cover the broad range of alternative strategies, both focused on directional strategies, where we're generating double-digit return based on the illiquidity premium or distressed nature of the investment, or non-directional strategies that take advantage of volatility in the asset class, and generate the same double-digit return with a lower volatility than beta of the asset class through the times of dislocations in the asset class, whether they're driven by macro events or bottom-up events.
What is key to consistently delivering performance and absolute return strategies? At RBC BlueBay, we feel that the success lies in deep research, experienced resources, and rigorous risk management with a team of over 100 individuals that collectively spend majority of their time on the ground in emerging and developed markets, doing their bottom-up due diligence, combined with state-of-the-art proprietary quantitative tools that allow us to measure the risk that we're taking, delivers an outcome where we consistently perform and deliver double-digit returns with a lower volatility than that of the market and consistent sharp ratios. We feel that we're a safe partner for an investor who wants to consider an absolute return strategy.
Key takeaways:
The resurgence of absolute return funds as investor confidence grows, is influenced by improved regulations and a demand for transparency.
An explanation of the differentiation between long bias strategies versus strategies that leverage market volatility.
The importance of deep research, experienced resources, and rigorous risk management in consistently delivering strong performance with lower market volatility.