How to navigate the credit crisis?

Credit crisis?

Three years after interest rates started rising, credit accidents are multiplying. How should one position themselves in this context?

The First Cracks in the U.S. Economy

Last September, three years after the FED began its remarkable rate-hiking cycle, the first cracks began to appear in the wall of the American economy. Tricolore and First Brands suddenly filed for bankruptcy, resulting in hundreds of millions, if not billions, of dollars in losses for their creditors. Among them were major investors, including JP Morgan, whose CEO Jamie Dimon made headlines with a viral metaphor: “When you see one cockroach, there are probably more,” referring to the recent developments in the credit space.

In October, it was the turn of two regional banks (Zions Bancorp and Western Alliance Bancorp) to fall victim to potential fraud in the commercial mortgage market. While losses for these two institutions amount to “only” tens of millions of dollars, the impact is more significant given the small size of their balance sheets.
Following these seemingly isolated cases, confidence in the financial system was severely tested, with a combined USD100 billion drop in market capitalization among the country’s 74 largest banks, signaling a potential upcoming economic slowdown.

Risks to Avoid Amid Economic Slowdown

The private credit market, which has seen phenomenal enthusiasm in recent years, was quickly blamed. It is true that its recent success stirs up envy and some indulge in a bit of “Schadenfreude,” prematurely celebrating its setbacks. But in this space, not all managers are created equal. While some big names in the sector are facing significant losses, other players have so far remained unscathed.

In such a context, extreme diligence in selecting a private credit manager is crucial, as performance differences between the top and bottom quartiles can be significant. It is particularly important to favor the most experienced managers, those who have been through several credit cycles, over those who have merely ridden the wave of this asset class in recent years. And when one is not able to do this themselves, it’s essential to rely on a firm that knows how to identify the best talent in the field.

For example, the best managers are better able to distinguish between resilient issuers and those with a weaker credit profile due to over-indebtedness, business models at risk of disruption by artificial intelligence or other characteristics that may escape the less trained eye.

Opportunities and Alternatives to Conventional Credit

Though worrisome at first glance, these recent events may present tremendous opportunities. Long-short credit managers, for example, may be able to stand out. Again, rigorous manager selection is essential, especially given the high leverage levels inherent to this type of strategy.

For those wishing to avoid exposure to corporate and private credit altogether, there are still a few interesting alternatives offering similar returns with different types of risk. “Cat bonds” (catastrophe bonds), for example, provide total decorrelation from the credit market by being exposed instead to natural disasters such as hurricanes or earthquakes. Finally, local currency emerging market debt, after a stellar start to the year, continues to offer fabulous returns, thanks to high real interest rates and attractive fundamental valuations of local currencies against the dollar.

Thus, in today’s environment, manager selection remains a key factor but not the only one. The ability to identify alternatives to conventional credit and build diversified portfolios across different risk sources also plays a vital role.

Past performance is not indicative of future results. The views, strategies and financial instruments described in this document may not be suitable for all investors. Opinions expressed are current opinions as of the date(s) appearing in this material only. References to market or composite indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only. NS Partners provides no warranty and makes no representation of any kind whatsoever regarding the accuracy and completeness of any data, including financial market data, quotes, research notes or other financial instruments referred to in this document. This document does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. Any reference in this document to specific securities and issuers are for illustrative purposes only, and should not be interpreted as recommendations to purchase or sell those securities. References in this document to investment funds that have not been registered with the Finma cannot be distributed in or from Switzerland except to certain categories of eligible investors. Some of the entities of the NS Partners group or its clients may hold a position in the financial instruments of any issuer discussed herein, or act as advisor to any such issuer. Additional information is available on request. © NS Partners Group

Active Management: Turning Euphoria into Opportunity

Active Management: a driver of growth and a source of added value, Swiss industry deserves its place in investment portfolios.

Often seen as a service-driven economy, Switzerland in fact rests on a solid and diversified industrial base. Key sectors such as pharmaceuticals, chemicals, machinery, metalworking and electricity generation make up a robust export-oriented industrial ecosystem that plays a decisive role in the country’s wealth creation. In 2024, the secondary sector made up 24.7% of GDP, an unusually high figure for a developed economy, exceeding the European Union average.

A Remarkable Trajectory, Despite a Strong Franc
The Swiss franc, long considered a traditional safe-haven asset, has strengthened versus other major global currencies. In theory, this trend should undermine export competitiveness, yet it has not hindered the momentum of Swiss industry. In fact, over the past 15 years, Swiss industrial production has shown steady growth. In Q1 2025, it rose by +8.5% year-over-year. Even more striking, industrial output has grown by nearly 40% since 2010 despite the franc strengthening by over 25% relative to the euro. What explains such performance? Much of it lies in the structure of Swiss industry itself. The absence of a large automotive sector, combined with a focus on high value-added niches, gives Swiss industry greater resilience to external shocks and the ability to export specialized goods that continue to be in high demand globally.

Active Management in Swiss Industry

Switzerland Generates Far More Value Per Exported Unit than China
While China remains the world’s largest industrial producer by volume, Switzerland stands out through its much higher value-added intensity. In 2024, Switzerland’s per capita trade surplus was nearly 12 times higher than China’s. This momentum also sets Switzerland apart within Europe. Industrial growth here has been significantly more robust than in most major European economies, including Germany.

U.S. Trade Policy: Ongoing Uncertainty
In 2025, one of the key external risks remains the trade policy of the United States. Tariff measures announced by Donald Trump prompted many companies to bring forward deliveries into Q1, contributing to GDP growth for the period. In response to this uncertain climate, Swiss companies are adopting various adaptation strategies: price adjustments, partial reshoring of value chains, and geographic diversification, even as hopes persist for a bilateral agreement. Diplomatic pressure is mounting and drawing firm conclusions in such a fluid environment remains risky. However, Switzerland’s focus on differentiated products suggests the country will continue to adapt effectively.

A Strategic Long-Term Positioning
Despite international economic uncertainty, Swiss industry, driven by niche leaders, a culture of constant innovation and a highly skilled workforce makes a strong case for long-term strategic exposure in investment portfolios. Whether facing a strong franc or trade tensions with the U.S., Swiss firms are quick to adapt. Even in a context of global slowdown, Switzerland continues to maintain a healthy trade surplus. This reflects the structural resilience of its industrial model.

Past performance is not indicative of future results. The views, strategies and financial instruments described in this document may not be suitable for all investors. Opinions expressed are current opinions as of the date(s) appearing in this material only. References to market or composite indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only. NS Partners provides no warranty and makes no representation of any kind whatsoever regarding the accuracy and completeness of any data, including financial market data, quotes, research notes or other financial instruments referred to in this document. This document does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. Any reference in this document to specific securities and issuers are for illustrative purposes only, and should not be interpreted as recommendations to purchase or sell those securities. References in this document to investment funds that have not been registered with the Finma cannot be distributed in or from Switzerland except to certain categories of eligible investors. Some of the entities of the NS Partners group or its clients may hold a position in the financial instruments of any issuer discussed herein, or act as advisor to any such issuer. Additional information is available on request. © NS Partners Group

Swiss equities: resilient, diverse and poised for growth

A unique blend of stability, specialization, and long-term performance defines Switzerland’s investment landscape.

Switzerland’s equity market stands as a quiet powerhouse within the global investment arena. Renowned for its political neutrality, monetary prudence and economic resilience, the country offers investors a rare combination of safety and structural growth. While many investors are familiar with its multinational champions, Switzerland also offers a dynamic and diverse universe of mid- and small-cap companies that are often global leaders in their specialized niches.

A Prime Investment Opportunity

Amid persistent global economic headwinds, Switzerland continues to shine as a beacon of macroeconomic stability. Recent macroeconomic indicators confirm the robustness of the Swiss economy. The Swiss National Bank (SNB) anticipates GDP growth of between 1% and 1.5% for the current year. The SNB maintains a balanced policy stance, and negative short-term yields point to potential rate cuts that could further support equities. Currency dynamics reinforce the attractiveness of Swiss assets. The Swiss franc remains strong. This strength reflects investor confidence in Switzerland’s macroeconomic foundations and offers international investors a natural hedge in volatile markets.

Defensive by Design, with Long-Term performance

At the large-cap level, the Swiss Market Index (SMI) is heavily weighted toward defensive sectors. Global leaders like Nestlé, Roche and Novartis provide earnings visibility, dividend reliability and resilience in turbulent markets. The SMI’s consistent resilience has established it as a cornerstone of defensive equity strategies, offering stability and reliable performance through market cycles.
Over the past decade, Swiss small- and mid-cap equities, as represented by the SPI Extra Index (SPIEX), have outperformed the Swiss Market Index (SMI). However, during the most recent market cycle, SPIEX underperformed, presenting a compelling recovery opportunity for forward-looking investors.

The Untapped Potential of Mid and Small-Cap Swiss Stocks

Beyond the headline giants lies a thriving ecosystem of over 190 listed mid- and small-cap companies, many of which are global leaders in highly specialized segments. This includes firms such as VAT Group, which supplies vacuum valves to the semiconductor industry, Belimo, a world leader in HVAC automation and Siegfried Holding, a contract manufacturer for the global pharmaceutical sector. These companies are not only highly specialized but also financially robust, often combining strong free cash flow with low leverage and disciplined capital allocation.
While small- and mid-caps naturally carry higher liquidity risk and occasional valuation premiums, the growth-to-risk trade-off remains compelling, especially in a country with such disciplined governance and transparency standards.

Strategic Sector Exposure

Switzerland’s equity market is structurally overweight in defensive sectors. Compared to the MSCI All Country World Index, where defensives represent less than 20%, the Swiss market stands at over 65%. This offers investors a rare opportunity to gain long-duration exposure to non-cyclical sectors such as healthcare, food and beverage, and insurance.
Meanwhile, exposure to high-growth themes is embedded in Switzerland’s mid-cap space: biotech, medtech, sustainable construction, fintech and advanced manufacturing all feature prominently.

A Note on Sustainability

While not always at the forefront of equity narratives, ESG and sustainability are deeply embedded in the Swiss corporate culture. Most Swiss-listed companies, large and small, publish detailed ESG reports and actively incorporate long-term environmental goals. The country itself draws the bulk of its electricity from renewable sources, notably hydropower, and leads Europe in carbon footprint transparency.
As investors increasingly integrate ESG considerations into capital allocation, Switzerland offers a highly aligned investment landscape.

Depth Beyond the Headlines

As concerns rise, the investment landscape remains notably resilient. Meanwhile, the broader economic outlook is cautiously optimistic: the State Secretariat for Economic Affairs (SECO) forecasts a 1.4% GDP growth (adjusted for sporting events. The Swiss National Bank’s pragmatic and flexible monetary policy further supports the investment environment, while sustainable assets and corporate bonds maintain their appeal in diversified portfolios. These dynamics create a backdrop where selectivity and long-term perspective are rewarded. Despite the challenges of a strong franc and ongoing global trade tensions, Switzerland continues to stand out for its historical market resilience, economic strength, institutional quality and sectoral diversity. Swiss equities, particularly beyond the large-cap names in the SMI, offer strategic exposure to a blend of defensive stability and innovation-led growth. Switzerland is no longer just a safe haven; it is a structurally sound, forward-looking market. For investors ready to look beyond the familiar, it offers access to some of the world’s most innovative and well-managed companies, hidden in plain sight, yet central to the portfolios of the future.

At NS Partners in our Swiss Excellence strategy, we recognize and harness Swiss strength. Our strategy blends exposure to Switzerland’s blue-chip multinationals with a concentrated portfolio of 45 stocks, including 26 high-quality small and mid-sized companies outside the SMI, striking a balance between stability and growth potential. Our investment approach is based on fundamental quality and long-term value creation. We focus on companies with sustained earnings momentum, reasonable valuations relative to growth (PEG discipline), strong free cash flow generation and solid balance sheets. The result is a portfolio that has outperformed Switzerland’s three largest companies in price return since inception, while offering significantly greater exposure to innovation, growth sectors and underappreciated names.

What duration for a bond portfolio?

A few thoughts as the FED prepares to launch its rate-cutting cycle.

Duration back in the spotlight

Since the financial crisis of 2008 and the economic repression introduced by central banks through their quantitative easing programmes, long-dated bonds had lost some of their appeal. The last remaining attraction disappeared in the aftermath of the Covid crisis, when the same central banks injected massive amounts of liquidity into the market, sending bond yields falling. In fact, it hardly seemed relevant to invest in long-term bonds with yields close to zero. Since 2021, however, we have seen a paradigm shift, with the return of inflation forcing the Fed, in particular, to raise its key rates to an extent never seen before. Today, the US central bank is about to embark on a cycle of rate cuts (which have remained unchanged at around 5.25% since July 2023), against the backdrop of an economic slowdown marked by a weaker job market. These fears about growth are finally driving down the correlation between equities and bonds and, in this context, duration is once again becoming an attractive option for building an investment portfolio.

Favour short to intermediate durations

For the sake of simplicity, let’s focus on developed markets and run the US 10-year yield as a proxy for longer-dated bonds. To mechanically determine a theoretical target value for this yield, we can start from the FED’s neutral key rate, given by its last dot plot in June (2.8%) and add a time premium to it, which will vary according to the reference period and which is justified in particular by the uncertainties linked to future inflation. Historically, this premium between the Fed’s key rate and US 10-year yields has been between 1% and 2% or between 0.5% and 1.5% since the 2008 financial crisis. Taking averages, we can therefore conclude that the US 10-year yield should be 4.3%, if we assume that we are moving away from the paradigm that has prevailed since the financial crisis, or 3.8%, if we assume that we are still in a similar context. At the time of writing, the US 10-year yield is 3.66%. We can therefore conclude that, in theory and in the absence of a hard landing marked by a recession in the United States, long-term bond prices (which move inversely to yields) are slightly overvalued by the market. On top of this, the fundamentals are not very reassuring about the sustainability of the US budget, with deficits comparable to those in the days following the Second World War. Investing in this type of investment therefore does not seem appropriate.

A more reasonable option, and one that nevertheless adds a little duration to a portfolio, would be to opt for a short to intermediate duration. Here, we can run the 2-year rate, for example. Replicating the same analysis as for long rates, we obtain a historical time premium of 0.5% to 1% and almost zero for the period following the financial crisis, which gives us theoretical target values of between 2.8% and 3.55% depending on the macroeconomic context, whereas the current yield is 3.56%. We can see here that the market value and the theoretical price are more in line and that there is even an opportunity if we stay in a market similar to the post-financial crisis period.

The investor’s context

In reality, there is no exact universal solution when it comes to choosing duration within a portfolio, as each portfolio has its own characteristics to meet the needs of the client. An approach that favours the long end of the curve may still be justified, for example to hedge the risk associated with a portfolio that has a high exposure to cyclical equities. First and foremost, you need to identify the risk and return constraints specific to each portfolio before making your choice. It is also important to take a macroeconomic view when deciding on the time premium to be added to the target return for each maturity. These points are not intended to be exhaustive, but they should help bond investors in their allocation decisions at a time when duration is finally regaining popularity.

Past performance is not indicative of future results. The views, strategies and financial instruments described in this document may not be suitable for all investors. Opinions expressed are current opinions as of date(s) appearing in this material only. References to market or composite indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only. NS Partners provides no warranty and makes no representation of any kind whatsoever regarding the accuracy and completeness of any data, including financial market data, quotes, research notes or other financial instrument referred to in this document.

This document does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. Any reference in this document to specific securities and issuers are for illustrative purposes only, and should not be interpreted as recommendations to purchase or sell those securities. References in this document to investment funds that have not been registered with the FINMA cannot be distributed in or from Switzerland except to certain categories of eligible investors. Some of the entities of the NS Partners Group or its clients may hold a position in the financial instruments of any issuer discussed herein, or act as advisor to any such issuer. Additional information is available on request.

© NS Partners Group

A shock of volatility to raise the right questions

While the consequences of the mini-crash at the beginning of August were not too serious, it should serve as a wake-up call.

Signs of tension

During the first week of August, the financial markets experienced an episode of unprecedented volatility, reminding everyone that investors were no longer necessarily in a serene mood. During this episode, the VIX index, which measures volatility and hence tension in the S&P 500 index, reached a level of over 65, which is quite simply the 3^rd highest peak in its history. For he record, the two most severe peaks before that were the collapse of Lehman Brothers in 2008 and the materialisation of the scale of the COVID pandemic in 2020. I’m sure you’ll agree that this beginning of August had nothing in common with those two historic moments. So what happened?

Some complacency on the markets

As with any phenomenon of exceptional magnitude, there is never just one factor that explains it. The first phase of the crisis corresponded to the announcement of worse-than-expected US employment results. Fears of a marked slowdown in US growth were suddenly reawakened. As a result, the equity markets reacted negatively and the VIX rose, although nothing really dramatic until then. However, at the same time, the Japanese central bank announced that it was raising its key rates by 15bps, 5bps more than the market was expecting. The almost simultaneous combination of the two pieces of news had a scissor effect, with many JPY/USD carry trade positions being sold off in a hurry. It became clear that many speculators were borrowing in JPY at rates close to 0% in order to invest in USD assets, in the knowledge that short-term ‘risk-free’ US rates were in excess of 5%. This is an unfortunate reminder of the trend in the 2000s to borrow CHF mortgages to invest in EUR property, with the result that we are all familiar with.

The snowball effect

It’s at times like these that a good understanding of market structure can be essential. Many players, notably investment banks but also funds, are once again shorting volatility. After the VIX surged, they had to react quickly to cover their positions and rebalance their books. And they did so simultaneously, because they were all moving in the same direction, against a backdrop of low liquidity for the beginning of August. You know the rest of the story: the VIX reached these particularly high levels. Fortunately for these traders, the markets came to their senses and things normalised quickly enough not to trigger any a priori disasters. To date, the JPY/USD carry trade positions have largely been sold off.

What lessons can we learn from this?

This episode highlights the way in which events can unfold in some market configurations. Technical factors can run ahead of fundamentals, which is why good risk management is more essential than ever when it comes to investing. Another consequence is that the market looks more ‘fragile’ than it did at the beginning of the year. Clearly, central banks are not going to hesitate to cut rates to counter a more marked economic slowdown, while hoping that inflation is at an acceptable level, but the depth of the market has been reduced. Yes, NVIDIA can continue its meteoric rise by trying to meet the huge CAPEX requirements of the US tech giants, but the market is likely to be disappointed. Yes, India is seeing its promising growth confirmed, but it is also reasonable to think that the valuation of Indian small/mid-caps has become excessive. Yes, geopolitical risks may diminish in intensity in the near future, but unfortunately nothing is less certain and the associated risk premium does not seem particularly high to me.

To sum up, this end of summer seems to be a good time to ask ourselves what type of risk we want in our portfolios and to favour a diversified approach in terms of asset allocation.

Past performance is not indicative of future results. The views, strategies and financial instruments described in this document may not be suitable for all investors. Opinions expressed are current opinions as of the date(s) appearing in this material only. References to market or composite indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only. NS Partners provides no warranty and makes no representation of any kind whatsoever regarding the accuracy and completeness of any data, including financial market data, quotes, research notes or other financial instruments referred to in this document. This document does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. Any reference in this document to specific securities and issuers are for illustrative purposes only, and should not be interpreted as recommendations to purchase or sell those securities. References in this document to investment funds that have not been registered with the Finma cannot be distributed in or from Switzerland except to certain categories of eligible investors. Some of the entities of the NS Partners group or its clients may hold a position in the financial instruments of any issuer discussed herein, or act as advisor to any such issuer. Additional information is available on request. © NS Partners Group

The power of luxury: growth and resilience

Despite the current economic downturn, the luxury sector is resilient and continues to grow, while maintaining high margins.

In the current global landscape, luxury companies have established themselves as attractive and strategic investments. In the context of major challenges, the sector is emerging as a bastion of economic stability and a status symbol. Luxury giants such as Hermès and LVMH, iconic companies such as Prada and little gems such as Jungfraubahn are examples that not only embody luxury and exclusivity, but also offer solid financial opportunities.

Indeed, despite global economic fluctuations, the luxury sector has demonstrated a remarkable capacity for resilience and financial stability. Indeed, even in times of economic downturn, these companies often retain their value thanks to the loyalty of their wealthy customers. A case in point is Hermès, which has maintained steady growth over the years, even during recessions, thanks to the exclusivity of its products. In terms of performance, the company has even outperformed technology giants such as Meta and Alphabet, while exhibiting lower volatility.

A WELL-DIVERSIFIED SECTOR
Another great advantage that characterises most of the players in this industry is their diversified portfolio, which covers different brands and market segments, ranging from fashion and accessories to hotels and high-end drinks. LVMH is an excellent example of this diversification, with over 70 brands under its umbrella, including legendary names such as Louis Vuitton, Dior and Moët & Chandon. This strategy not only mitigates risk, but also facilitates geographic expansion by taking advantage of growth in emerging markets.

INNOVATING WHILE REMAINING TRUE TO THEIR HERITAGE
These companies also stand out for their ability to innovate while preserving their heritage and maintaining very high barriers to entry. Prada, for example, is renowned for its emphasis on innovation in design and materials, combining traditional Italian craftsmanship with modern technology. This fusion of innovation and tradition gives rise to unique products that appeal to demanding and loyal consumers, guaranteeing a steady stream of income and keeping the circle closed to just a few exclusive brands.

STRONG PRICING POWER
Finally, another attractive feature of luxury companies is their exceptional brand positioning, which enables them to set high prices, with margins far higher than those of their less exclusive competitors. This recognition is the result of decades of investment in quality, design and refined marketing strategies. Jungfraubahn, known for its exclusive destinations in the Swiss Alps, has established itself as an icon of luxury mountain tourism, attracting a global clientele in search of unique and unrivalled experiences.

Investing in luxury companies such as those mentioned above guarantees solid financial stability and effective diversification, thanks in part to their intangible value through prestige and exclusivity. Indeed, these companies not only market products, they also offer experiences and an ambitious lifestyle that continues to be sought after worldwide, particularly by the younger generation. For these reasons, acquiring luxury companies can be a strategic and profitable long-term decision.

Hedge funds: what positioning for 2024?

Preference for macro, equity and credit long/short strategies, but caution on multi-manager platforms.

A MIXED 2023

While equities enjoyed a positive start to 2023, hedge funds got off to a more mixed start. Indeed, following fears of a global economic slowdown, long/short equity managers started the year on a cautious note, maintaining a rather low net exposure to the market. For their part, global macro managers were hit by sharp reversals in trends, highlighted by the record fall in US 10-year yields following the regional banking crisis in the United States and the collapse of Credit Suisse.

Finally, after a remarkable 2022, relative value strategies, now dominated by the large multi-manager platforms, also stalled and were unable to keep pace with the rise in risk-free rates, which is their minimum target. But in the end – and it is true that the last two months of the year were particularly favourable – a diversified hedge fund portfolio was able to post a double-digit net return in 2023.

WHAT CAN WE EXPECT FROM 2024 AT MACRO LEVEL?

What about 2024? We are currently at a crossroads in terms of monetary policy. In fact, with the exception of Japan, the major central banks are now prepared, in the more or less short term, to lower their interest rates depending on the trend in inflation and economic growth. For their part, although the opinions of macro managers vary considerably, they generally agree that the market is hoping for a faster rate cut in the United States than might actually occur. With interest-rate volatility higher than that of equities, managers have reduced their risk allocations.

Certain themes, which did not always pay off in 2023, are still present in portfolios, such as bets on metals linked to the energy transition, particularly copper, on the normalisation of Japanese monetary policy and on long positions in certain emerging markets (Brazilian interest rates, Mexico, credit). After a year of contrasting results in 2023, macro managers should be well positioned to take advantage of volatility on the fixed-income, currency and commodities markets.

A STABILISED ENVIRONMENT FOR LONG/SHORT EQUITY MANAGERS

The ‘soft landing’ scenario that seems to be holding sway is giving a little more peace of mind to long/short equity managers, who have significantly increased their net exposure to the market in recent months. But make no mistake: good global long/short managers have posted returns of between +15% and +20% in 2023 – compared with an MSCI World index up by +21.8% – which constitutes positive alpha generation, firstly because of their exposure to the market of only around +60% and secondly because of their underweighting of the seven technology megastocks that have driven the market. Even Asian managers with a bias towards China posted positive returns over the past year, while the MSCI China index fell by -13.2% in 2023.

On the other hand, if there is one strategy that shows a little more cyclicality, it is the long/short equity strategy. At this stage, we believe that we are still in a cycle of rising alpha generation. What’s more, with the normalisation of interest rates and the fact that we are finally being paid to short stocks, we believe that a selection of good long/short managers is a good complement to an equity allocation in a portfolio. Perhaps it’s time to diversify your geographical allocation a little outside the US.

QUESTIONS ABOUT MULTI-MANAGER PLATFORMS

Multi-manager platforms have been the big winners in recent years. Since 2017, their assets under management have increased by +186% and the seven largest platforms, including Citadel, Millennium, Point 72 and Balyasny, now account for over 60% of the market share in this category. The asset class approaches and exposures vary from one company to another, so it is not always easy to compare them. That said, they are now waging a merciless war to attract the best traders, who are paid handsomely, which has an impact on costs.

In these platforms, a successful manager can receive performance fees even if the overall result is zero or even negative, which translates into what is known as ‘netting risk’. This risk can materialise more quickly if the performance of the funds falls short of expectations. For platforms that have experienced rapid growth, it will be necessary to digest the assets and assess whether there is any dilution of the added value in the final result. In addition, with liquidity requirements having become more restrictive, we now have to be very selective.

Finally, to conclude our overview of the positioning to adopt in 2024, we believe that good long/short credit managers should be able to generate attractive returns in the market environment that awaits us over the next few months.

In conclusion, the key to obtaining a satisfactory result from your hedge fund portfolio is to define your expectations clearly, as the construction and development of your portfolio will depend directly on this. To be successful, however, you need to bear in mind two important factors: firstly, you need to make a good selection beforehand, and secondly, you need to be as contrarian as possible.

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