Key Takeaways
- • Aware Super, a $160 billion institution, is repositioning its liquid alternatives strategy to capitalize on heightened uncertainty, dispersion, and volatility in macro markets—conditions it characterizes as "magical words" for hedge fund performance.
- • Hedge fund performance has been mixed over the past 12-24 months, with trend-following strategies generating returns of approximately 70% in periods of rapid interest rate moves, but subsequently struggling in choppy markets with large equity and rate swings.
- • Global systematic macro strategies have emerged as a performance driver during volatile periods, contrasting with the underperformance of trend-following approaches when market conditions shift.
- • Aware Super operates two distinct hedge fund portfolios: one focused on growth strategies (multi-asset, macro, and systematic funds) and another dedicated to defensive positioning through trend and tail-risk hedging strategies.
- • The institutional investor pivot toward private debt, private equity, and infrastructure for yield generation has created a "very wide playing field" for hedge funds, requiring sophisticated diversification across multiple strategy types rather than concentrated bets on single market themes.
Summary
The $160 billion Aware Super is recalibrating its approach to liquid alternatives in response to a fundamentally altered market regime characterized by elevated macro uncertainty and dispersed asset performance. Speaking at the AIMA conference, Jai Parrab, Aware Super's associate portfolio manager for liquid alternatives and macro strategies, outlined a strategic shift that reflects lessons learned from volatile market conditions over the past 12-24 months.
The hedge fund industry has experienced mixed results during this period, according to Parrab. Trend-following strategies, which generated exceptional returns—up approximately 70 percent—during the period of rapid interest rate moves, have subsequently faced headwinds. This represents a critical inflection point: while trend-following strategies successfully captured directional conviction in rates when "nobody wanted to believe" in the magnitude of the move, these approaches have struggled once market conditions shifted to what Parrab describes as "very choppy markets" with large concurrent moves in both rates and equities.
In response to this volatility, global systematic macro strategies have proven their value proposition, emerging as a counterbalance to trend-following underperformance. This dispersion across hedge fund strategies underscores a fundamental lesson for institutional allocators: diversification across multiple hedge fund approaches is essential rather than optional. Parrab acknowledged that this principle, while sometimes dismissed as clichéd, has been validated by recent market dynamics.
Aware Super's portfolio structure reflects this philosophy. The institution maintains two distinct hedge fund allocations: a growth-oriented portfolio emphasizing multi-asset, macro, and systematic funds, and a defensive portfolio concentrated on trend-following and tail-risk hedging strategies. This dual approach enables the institution to participate in both upside capture during volatile environments and downside protection through explicit hedging instruments.
The broader context shows institutional investors increasingly seeking yield through private debt, private equity, and infrastructure allocations—creating what Parrab characterizes as a "very wide playing field" for hedge fund strategies. Within this landscape, the ability to navigate dispersion and volatility through diversified hedge fund exposure has become a critical institutional competency.
The hedge fund industry has experienced mixed results during this period, according to Parrab. Trend-following strategies, which generated exceptional returns—up approximately 70 percent—during the period of rapid interest rate moves, have subsequently faced headwinds. This represents a critical inflection point: while trend-following strategies successfully captured directional conviction in rates when "nobody wanted to believe" in the magnitude of the move, these approaches have struggled once market conditions shifted to what Parrab describes as "very choppy markets" with large concurrent moves in both rates and equities.
In response to this volatility, global systematic macro strategies have proven their value proposition, emerging as a counterbalance to trend-following underperformance. This dispersion across hedge fund strategies underscores a fundamental lesson for institutional allocators: diversification across multiple hedge fund approaches is essential rather than optional. Parrab acknowledged that this principle, while sometimes dismissed as clichéd, has been validated by recent market dynamics.
Aware Super's portfolio structure reflects this philosophy. The institution maintains two distinct hedge fund allocations: a growth-oriented portfolio emphasizing multi-asset, macro, and systematic funds, and a defensive portfolio concentrated on trend-following and tail-risk hedging strategies. This dual approach enables the institution to participate in both upside capture during volatile environments and downside protection through explicit hedging instruments.
The broader context shows institutional investors increasingly seeking yield through private debt, private equity, and infrastructure allocations—creating what Parrab characterizes as a "very wide playing field" for hedge fund strategies. Within this landscape, the ability to navigate dispersion and volatility through diversified hedge fund exposure has become a critical institutional competency.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.