China, Europe and Japan top Pictet’s hedge fund opportunity list

Pictet’s Doc Horn outlines how disciplined portfolio positioning, selective alpha opportunities and diversified hedge fund allocations can help investors navigate an increasingly uncertain market environment.
Over the next 12 months, Doc Horn, Head of the Total Return Equities Fund at Pictet Asset Management, believes the fund’s success will largely depend on how effectively it allocates capital between offensive and defensive opportunities across its 15–20 internal teams. “The macro shocks that we have been experiencing have increased the opportunity set for our active managers to exploit inefficiencies as they emerge. However, avoiding large drawdowns is critical in uncertain times.”
As head of the Total Return business, he oversees allocations close to $10bn. The multi-manager platform creates a diversified opportunity set that is robust and able to generate returns across different market cycles. “Earlier this year, fundamental and event-driven strategies performed strongly, while systematic strategies were more challenged. Then in March, systematic strategies performed very well and provided diversification benefits.”
Despite the exuberance across the US stock market, Horn is paying close attention to three regions going forward: China, Europe and Japan. He distinguishes between China beta, which can be used as a directional play but is less rich, and China alpha, where, done on a selective stock-picking basis, is very strong. Pictet has had a presence in China for over twenty years, meaning their market knowledge and cyclical understanding, they feel, give them a “significant edge”. Horn also believes that European mid-cap companies are consistently overlooked and Japan offers investment opportunities, through its improved corporate governance and focus on shareholder returns.
Despite growing allocator reticence towards multistrats, because of their talent retention problems and concentrated returns, a third of Pictet capital is allocated in this direction. Horn believes that multistrats will continue to attract attention from allocators, “allocator growth is coming from private wealth and intermediary channels, multi-strat funds act as ‘alpha bricks’ in portfolios.” He is also keen to point out the growing role that event-driven and special situations strategies play within a portfolio, noting that Pictet has recently hired a team to pursue convertible arbitrage opportunities to capitalise on this trend.
Despite the ferocious hedge fund talent war, where firms battle it out with huge sums of money to entice and retain staff, Horn is confident in what Pictet offers. “We are able to offer both institutional stability and the option to eventually launch independent strategies under the Pictet umbrella; that combination attracts high-quality investment talent.”
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