There are three alternative strategies where Tom Florence, president and CEO of 361 Capital, sees a lot of interest growing among investors and their advisors.
Since its founding in 2001, 361 Capital has focused exclusively on alternative investments. In 2009, when Florence bought a controlling interest in 361 Capital, he helped transform the company into an "alternatives mutual fund company."
The firm's strategy evolved away from hedge funds and LPs to focus exclusively on creating liquid alternative investment solutions. The firm now offers five single-manager alternative mutual funds, including managed futures, global counter-trend, long/short equity, and macro mutual funds.
At the end of March, the firm launched its fifth mutual fund.
The Denver-based firm now has roughly $1.3 billion in assets under management and works with more than 1,000 investment advisory teams.
"What we've put together and will continue to grow is an interesting collection of alternative mutual funds that appropriately fit within an advisor's portfolio, where they're looking for things like lower correlation to the equity markets, better diversification, things like that, better risk return characteristics," Florence told ThinkAdvisor.
Dan Cascarano, vice president of national accounts and institutional sales at 361 Capital, told ThinkAdvisor that he sees the trend into liquid alternatives by various institutional allocators is "in early innings."
"You've see in the liquid alternative space, the sort of growth in the space over the last five years, has resulted in higher quality managers and a collapse in the performance gap between more restrictive vehicles and daily liquidity vehicles," Cascarano said. "It's starting to make a lot more sense for these entities to think about allocating."
During a visit to ThinkAdvisor's office, Florence discussed three areas in the alternatives space where he sees growth and opportunity.
Long-Short Equity
Long-short equity is a category that Florence admits he's "very excited about."
The firm launched a domestic long-short equity fund at the end of March. 361 Capital also has a global long-short equity fund that's more than two years old.
"We think that long-short equity for a lot of reasons has the opportunity to really expand and grow in all sorts of investors' portfolios – be it individual investors, be it advisor portfolios managing the money on behalf of the individuals, or institutions," Florence told ThinkAdvisor.
As Florence explains it, 361 Capital's global long-short equity fund aims to provide "roughly half the exposure" to the MSCI World Index, for example, with "roughly the same return stream" since inception.
"What investor wouldn't want to take half the risk of whatever benchmark you're talking about, in this case we're talking about the MSCI World, and get the same returns?" Florence said. "That in itself is exciting."
While people have largely kept their alternative investments in a separate bucket from their equity and fixed income buckets, Florence sees this changing.
"What we see happening is, long-short equity in particular, beginning to creep into the equity bucket or you could look at it core overall, which would be your combination of equity and fixed," he explained. "Because it's beta exposure, so if you put it in your alternative bucket, you're really just absorbing more beta exposure. "
In the March issue of Investment Advisor magazine, 361 Capital's chief investment officer, Cliff Stanton, makes the case that long-short equity could be the new core allocation – replacing a large portion of the traditional stock-and-bond core while improving overall performance.
