As investors we need to be alert to the fact that environments can and do change rapidly. It is possible that we could move from a low to a high return world very quickly. In part as a consequence of the prevailing concerns around the low return environment, there is growing pressure on investors to lift returns and part of the solution is to fill the gap with alternatives. This is not new. We’ve seen it before with hedge funds (who by and large have overpromised and under-delivered – particularly after fees). We saw it in the lead up to the GFC with structured credit (and we know how that ended). The latest machination, dressed up in concepts such as “idiosyncratic alpha” or “alternative risk premium” are primarily focused on the implementation of strategies that have a low correlation to either equity or bond beta. While conceptually it is logical in a world where returns from equities and bonds are likely to be constrained, stepping down this path is unlikely to solve the low return problem faced by investors. (VIEW LINK)