Those sweeping macro factors in 2013 made it much harder to find differentiated investment opportunities, especially for managers offering strategies that were long volatility, flat to short equity beta, relative value-oriented, systematic macro and commodities-focused, Mr. Wright said.
2014 promises much better return dispersion and higher volatility for both equity- and credit-oriented strategies, Mr. Wright said, but “hedge fund managers will have to manage money the old-fashioned way, using skill to generate alpha. They won't be able to rely solely on equity beta.”
“I'm not sounding an alarm bell, but with asset prices where they are now, it's not a no-brainer to deal with the increased volatility that's coming. Managers will have to short, and real hedges will have to be in place,” agreed Alec Litowitz, founder and CEO, Magnetar Capital LLC, Evanston, Ill.
Fundamental, bottom-up long/short equity managers are “poised for good performance” as global markets become less influenced by macro factors, said Lee S. Ainslie III, Maverick Capital Ltd.'s managing partner, based in the company's New York office.
Mr. Ainslie said the factors that kept interstock correlations higher than average and dispersion much lower for the past six years have reversed.
“Market stability is much better, mostly due to improved clarity over regulatory and fiscal issues, which will give fundamental hedge fund strategies a (new) tailwind. I am optimistic that shorting will be much easier in 2014 than it was last year,” said Mr. Ainslie.
Maverick managed $9 billion as of Nov. 30.
Long/short manager Passport Capital LLC, San Francisco, remains in hot pursuit of growth stock opportunities, said John Burbank III, founder, CIO and lead portfolio manager of the firm's global strategies fund. Because he believes the U.S. dollar will strengthen, the Standard & Poor's 500 index will rise and U.S. economic growth will be stronger than most other countries in 2014,
Mr. Burbank now is long U.S. equity and strong companies that lead their sectors. Mr. Burbank said he is short emerging market equities, with the exception of China and Saudi Arabia, “average” companies and commodities.
“2014 is going to be a great time for long/short strategies, with ample opportunities to protect yourself from macro trends,” Mr. Burbank said, stressing that the impacts of “macro trends and policymakers are overrated. The market has already discounted the effect of tapering and other regulations.”
Passport Capital managed $3.1 billion as of Nov. 30.
Aksia's Mr. Vos said event-driven approaches top the consultant's list of most-favored strategies for institutional investors going into 2014. But Aksia's consultants “continue pounding the table” — as they have for the past year — about combining event-driven hedge funds with complex credit and equity strategies, which “should be pulling in high returns in 2014,” Mr. Vos said.