“Investors are looking at such funds as a lower downside in a bear market can help fund manager to re-deploy the conserved capital to re-enter equities at beaten-down valuations,” Bhatia added.
“We have also seen good traction for Edelweiss Alternative Equity Scheme, as investors recognise that in an uncertain environment, there are opportunities to gain from winners and also profit from pain points that we are seeing playing out,” said Nalin Moniz, chief investment officer, alternative equity at Edelweiss Global Asset Management.
“We have been building short positions in weaker businesses, and in the current environment, such businesses have borne the brunt of the cornavirus outbreak,” he added. However, experts say investors need to cautious of which long-short funds they are looking at. “While HNI clients have been disappointed with the performance of various equity products amid the recent market volatility, long-short funds may not work in all cases, unless the strategy is executed efficiently,” said the head of investments at a wealth management firm. According to experts, investors can also consider other strategies besides long-short, as market valuations have already seen a sharp correction.
“Investors can consider deploying funds into long-only strategies in a staggered manner, given the ongoing fall in valuations in recent weeks. Long-short funds may face challenges on account of option pricing, which may not be favourable given the high implied volatility,” said Rajesh Cheruvu, chief investment officer, Validus Wealth.
“Further, investors need to be wary of the leverage in long-short funds, given the liquidity crunch and credit events that non-banking lenders are facing,” he said.
The alternative investment fund platform — under which long-short strategies operate — is relatively new in India, with Sebi laying down the AIF regulations in 2012. The regulations also allow long-short AIFs to take leverage for investments.