Absolute return investment refers to an investment strategy that seeks to achieve positive returns regardless of market conditions, rather than trying to outperform a benchmark index. It focuses more on managing risks and capturing opportunities through flexible mandates. This article analyzes key information and conclusions regarding absolute return investments based on the reference materials provided.
Flexible investment approach is core of absolute return strategies
The key feature that defines absolute return investment strategies is the flexibility and lack of constraints they provide for managers. As the first reference article mentions, these strategies allow managers to utilize a variety of investment directions, methods and tools to maximize exposures and capture opportunities in markets. This distinguishes them from traditional long-only strategies that are restricted to certain asset classes and benchmark indexes.
Incentive fee structure aligns manager and investor interests
Absolute return strategies also utilize incentive-based fee structures to encourage managers to take risks and generate strong risk-adjusted returns. As the first article explains, managers often charge performace fees of 20% on top of base management fees, which means their compensation is tied directly to the fund’s profits. This fee arrangement aligns the interests of investment managers and investors.
Only open to sophisticated investors
Finally, absolute return vehicles place restrictions on the types of investors eligible to participate, given the complexities and risks involved. They are tailored towards institutional investors and high net worth individuals considered to be more sophisticated. This ensures investors can understand the strategies and handle potential losses associated with flexible mandates pursuing absolute returns.
In summary, absolute return investment strategies differentiate themselves through flexible mandates, performace-based fee structures and an exclusive investor base. They aim to provide positive risk-adjusted returns in all market environments by actively managing risks rather than chasing benchmarks.