Hedge funds offer attractive diversification features when added to a traditional portfolio of stocks and bonds. As hedge funds and other alternative investments tend not to move in step with traditional assets, adding them to a portfolio helps to reduce risk and volatility while improving returns.
Interest in hedge fund investments has increased rapidly following the increased volatility in financial markets seen since 2000, and growth is set to continue as individuals and institutions search for higher risk-adjusted returns.
To meet this demand, UBS brought together several existing centers of hedge fund expertise in early 2003 to form the alternative and quantitative investments business within Global Asset Management.
Employing around 225 professionals located mainly in Chicago, Stamford, New York, London, Zurich, Tokyo, Hong Kong, and Singapore, it serves as one of the principal hedge fund providers in UBS. Since its inception in 2003, invested assets have more than doubled to CHF 26 billion (USD 20 billion).
The business both operates its own hedge funds and offers multi-manager (funds of funds) portfolios consisting of third-party hedge funds. The in-house funds operate under two brands, O'Connor and DSI. O’Connor has a long history as an operator of single-manager hedge funds and is recognized as a pioneer in the development of the equity derivatives markets. Today, O'Connor operates hedge funds employing equity long/short and other common hedge fund strategies.
DSI offers quantitatively-based equity long/short and enhanced index strategies. The latter seek to modestly outperform specific equity market indices by creating modified index-based funds based on fundamental analysis of the constituent stocks.
The multi-manager stream consists of two distinct providers. The global Alternative Investment Solutions group creates well-diversified portfolios of third-party hedge funds. At the core of the unit is a research-intensive investment process that screens, selects, and monitors hedge fund managers for inclusion in portfolios.
The other component of the multi-manager business is the Alternative Funds Advisory (AFA) group, which constructs complete portfolio solutions. These combine funds of hedge funds with single manager strategies and other alternative assets, including private equity. The unit was founded in the late 1990s, primarily to manage assets from the UBS Pension Plan in Switzerland. From early 2000, AFA started to offer external clients combined investments in top-tier hedge funds and private equity partnerships.
UBS believes that the alternative and quantitative investments business' broad span of activities offers one of the strongest global capabilities in the industry. Investors can either use its direct hedge fund capabilities as components of their own strategies, or they can take the multi-manager approach to ensure their exposure to the hedge fund sector is well-diversified and broad-based.
The business also contributes to the collective success of UBS, providing advice on alternative investments to the Wealth Management business. Our private clients therefore benefit from the same capabilities that support our institutional relationships. Together with GAM, the alternative and quantitative investments business makes UBS one of the world's largest hedge fund managers.
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