Thousands of alternatives money managers and asset allocators descended on Miami Beach, Florida, for what has become known as hedge fund week.
And the buzz this year at the Global Alts iConnections MFA conference centered on artificial intelligence, hedge fund performance and uncertainty around the policies that may come out of the second Trump administration.
Hedge fund outlook
Jackie Rosner, managing director at PAAMCO Prisma, said on a panel that double-digit returns for hedge funds should be achievable in the current environment.
“Given that cash rates are so elevated, hedge funds for a long time have been competing with the equity rally,” said Rosner. Now, he said, the environment is very strong.
Hedge funds should be "hopefully capable of generating – one should aim for these double-digit returns, between the new administration, tariff changes and immigration reform, the wall of worry is mounting.”
In 2024, hedge funds on average returned 10.7%.
He said the elevated fear of China and overall geopolitical risk should create a good environment for trading strategies that are volatility-friendly.
The multi-strategy hedge fund space has seen enormous growth in recent years and speakers on another panel pointed to investors seeing something that works and allocating more to the segment.
“We think there is going to be a lot more dispersion,” said Jack Springate, managing director and global head of hedge funds at Goldman Sachs, about the multistrategy space. He added that there are still outstanding multi-strategy hedge funds out there, but, there is also a growing recognition that alpha can be captured at smaller, boutique multi-strategy firms.
Views on AI
The market rout linked to Chinese AI firm DeepSeek sparked discussion around the future of AI investing.
Imran Khan, founder and CIO of Proem Advisors, a long/short equity technology focused hedge fund, said the event was a “game changer.”
“I think it’s a very interesting time in the stock market because when there is significant change, there will be winners and there will be losers,” he said.
Aaron Cowen, managing member and portfolio manager at Suvretta Capital Management, said he thinks it is phase two or three of the AI trade. “We didn't know this would be the catalyst,” he said of DeepSeek. “This is probably the catalyst. And it's exciting.”
Michael Wilson, chief U.S. equity strategist and chief investment officer at Morgan Stanley, told a panel that the recent shakeup related to DeepSeek was confirmation that the tech-dominated, concentrated bull market has been coming to an end.
It’s a good thing, said Wilson, because the concentration of outperformance has “sort of sucked all the oxygen out of the market into a handful of stocks. If you go back to last summer and you look at the Magnificent Seven, the two stocks that never made a new high were Nvidia and Microsoft, the two poster children for the AI buildout.”
“So that relative underperformance was telling you that, maybe it wasn’t sort of the new technology out of China, but it was more that there’s going to be a deceleration in AI capex (capital expenditure).”
Pablo E. Calderini, president and CIO at Graham Capital Management, told Pensions & Investments that for his firm “AI is a big theme in terms of the macro economy, the impact on growth and also the impact on single names.”
Calderini said how firms are themselves using AI is an important theme.
“We are not using unsupervised machine learning, but we are using machine learning tools very, very deeply,” he said, adding that portfolio managers are using some form of AI for doing their own research.
“So I would say we see it as a tool for improving alpha, for analyzing data, for building better forecasting models," he said. "Right now, many of the tools of AI we have been using for a while, and we are using more and more tools now.”
Political uncertainty
Robyn Grew, CEO of Man Group, said in a fireside chat she is still waiting to see if the return of Donald Trump to the U.S. presidency will bring with it “good-for-the-markets Trump” or “bad-for-the-markets Trump.”
“Are we going to see deregulation? Are we going to see a reduction in taxes? Are you going to see peacemaking?” asked Grew.
“If these things come into play, they are exceptionally strong things for markets. Or are you going to see some of the disruptive elements? Are you going to see him not peacemaking? Are you going to see some of the rhetoric around 51st states or Greenland, or some of that?”
Uncertainty is the word of the day, said Howard Marks, co-chair at Oaktree Capital Management, which has $205 billion in assets under management.
“You have to admit today that we know less than usual about what the future holds in that regard. And you know, I think that, I think that this administration is less predictable,” he said, adding that, “I don't know if the members of the administration can predict what they're going to do a year from now. I certainly know I can't.”
