| SAN FRANCISCO, Sept 8
SAN FRANCISCO, Sept 8 Money moving from hedge
funds and other active investment managers to low-cost passive
strategies will ultimately be a boon for professional money
managers, according to Mark Okada, co-founder of Highland
"All of this chasing of beta and passive management, et
cetera, is just setting up for the next opportunity for alpha
for active management," Okada, also Highland's chief investment
officer, said on Thursday at the Alpha Hedge West conference in
Beta refers to overall market gains, whereas alpha refers to
the extra returns from a manager's investment skill.
Okada said Highland, an approximately $17 billion credit
specialist based in Dallas, has produced strong returns in 2016,
underscoring the value of investing in so-called alternative
The $947 million Highland Global Allocation fund, a hedge
fund-like mutual fund that invests in both stocks and bonds, is
up 20.6 percent this year through Sept. 7, according to
The average credit-focused hedge fund, according to the
benchmark Hedge Fund Intelligence Americas Credit Index, is up
5.88 percent this year through August. That compares to a 4.22
percent gain by the iShares Barclays Aggregate Bond Fund.
Okada said that bond prices are relatively high, indicating
there were few obviously cheap assets on which to bet. Okada
noted two exceptions: private credit, which is essentially
direct loans to businesses, and debt related to collateralized
"There are lots of ways to express credit exposure and I
think it's still very interesting," he said. "But let's face it,
after being up 15, 16 percent for the year you are supposed to
be taking some gains."
Okada said he expected moderate economic growth to continue
in the United States, ensuring business demand for private
credit. He also said interest rates were unlikely to increase
dramatically, helping support the price of bonds.
Okada was optimistic in the face of mounting gloom in the
industry after several years of returns near or below low-cost
"Regardless of what rates do, we'll mean-revert around
active management," he said, referring to how prices and returns
ultimately move back to their historical average. "I think that
2017 and 2018 will be great times to be in the hedge fund and
the alternative credit space."
(Editing by Jeffrey Benkoe)