By Diane Harrison

2017 will be a hard year for allocators and investors to get excited about hedge fund performance versus US equities. Hedge funds returned on average about 6% in the first 11 months of 2017, significantly lagging the stock market, which was up over 20% for the same first 11 month period.

Hedge fund defenders will say that hedged portfolios are not designed to keep up with a soaring stock market, but that song often falls on stubbornly deaf ears. However, December seems a good month to remind investors why alternative investments still have a core place in every portfolio. Here are several arguments in favor of including alternatives from some of my industry articles published throughout 2017:

Jan 2017: FOCUSING ON THE FEW TO FIND RESULTS

If we assume that the overpopulated hedge fund industry has been an aggregate lackluster performer, and that this universe comprises approximately 14,000 funds, then roughly 250 or so funds existing today are providing substantial benefits to their partners. This ‘power group’ generates performance regardless of what fees are being charged, what segments of the market they exploit, and what current regulations are burdening them.

Feb 2017: ALTERNATIVES ARE STILL IMPERATIVES

Although not shy in voicing their frustrations and disappointment with most alternative products, investors are nevertheless more committed than ever to being invested in the sector. Perhaps they have finally truly embraced the mantra of diversification and risk modification these products are meant to provide to portfolio management. While they still want to see wholesale improvements within alternative offerings, they are believers in the long-term allocation process, and managers must work to win them.

March 2017: STEMMING INVESTOR REDEMPTIONS

In terms of investment management, attracting investor capital and keeping this capital is more easily achieved through creating a positive and encouraging environment. Smart fund managers will create detailed and informative communication channels for their partners, including regular fund updates, insightful analysis on timely market topics, and a flexible range of options for investors to choose how to receive this information. While a fund’s performance can and will vary, consistency and dedication to the communication process should not. Make being an excellent communicator a lifestyle choice as a fund manager, and investors will reward this good behavior with loyalty.