Financial market volatility, which has increased over the last few months from unusually low levels, should remain elevated during 2015 as macro-economic inflection points are reached.
The recent correction in global equity markets removed a lot of the froth evident in valuation levels a few months ago and, looking ahead, global equities are likely to be supported by continued accommodative monetary policies and low bond yields.
Larger hedge fund managers attracted the bulk of net cash inflows.
Unusually low levels of volatility in asset prices over the last few months are not expected to continue and investors should brace themselves for more volatility, especially if US economic data continue to improve and investors reassess interest rate expectations.
Global equities are likely to benefit most as the theme of resynchronised global growth continues playing out over the coming year, with developed economies accelerating gradually and emerging markets bottoming out.
With South African equities trading at a hefty valuation of more than 18.5 times historical earnings, investors should continue to look offshore where prices are more attractive, and to improve diversification and take advantage of potential currency weakness.
Equity market investment returns over the past year have been strong, but the outlook for the coming 12 months is for much more muted returns and investors will struggle to outperform inflation.
Current funds have R72 billion in available capacity.
A good fund of hedge funds should represent less risk than the sum of its parts, the individual hedge funds that are its building blocks.
The main risk for global financial markets over the next few years is how ultra-accommodative monetary policy, unprecedented in size, is unwound.