Comparison & Review of Top Long-Short AIFs in India

Understanding Long-Short Strategies

Equity Funds vs Long-Short Funds
Most equity funds are long-only – they buy stocks and benefit when stock prices
move up. Accordingly, equity funds can typically only deliver positive returns in
bullish market conditions when stock price are moving up, and deliver negative
returns in bearish markets when stock prices fall.
Long-short funds have the ability to short stocks (take a sale, instead of a buy
position in a stock, via either future or option contracts). When you short a stock,
you benefit when the stock price falls, and lose when the stock price rises. This
gives fund managers of long-short funds, the ability to generate a positive return
even in bearish market conditions when stock prices are falling.
AIFs that follow a long-short strategy, invest in a combination of long positions
(via either equity shares or equity derivatives) and short positions (taking a short
or selling position in a stock, via equity derivatives). The broad aim is to go long
stocks that are expected to move up, and short stocks that are expected to move
down.
Long-short funds typically have a lower net-exposure (gross long minus gross
short) to equities, and accordingly are in a position to deliver returns with
substantially lower volatility than pure equity funds.
Most long-short funds use sophisticated trading strategies involving futures &
options, which allow them to construct trades that can lead to payoffs in very
specific types of market conditions that they expect to unfold.
Types of Long-Short Funds
There are many different types of long-short funds, that are structured differently
in terms of the amount of long (buy) and short (sale) positions that they can
enter into. This includes
  Market-Neutral/Absolute Return Long-Short Funds (similar to
conservative hybrid funds): Funds that seek to maintain close to a zero
net-long position (i.e. they try to maintain a similar amount of long & short
positions). These funds try to generate a small-positive return every
month, regardless of market conditions.
 Long-biased long-Short Funds (similar to dynamic asset allocation
or aggressive hybrid funds): Funds that typically have a 65%+ net-long
position in the markets, but who can use shorting to reduce equity
exposures in bearish market conditions to rescue the extent to which
portfolios decline when markets fall.
 Pure Hedge Funds (limited options in India): Funds that seek to be
net-long in bullish markets and net-short in bearish market conditions,
with an aim on making positive returns across all types of market
conditions. If a fund manager gets his calls right, this can lead to a fund
making large positive gains even in large bearish markets (assuming the
fund manager maintained a net short position through the declines).
The main Long-Short AIFs in India
There are currently only a limited number of options when it comes to long-short
AIFs in India, that are managed by a few key firms.
The major long-short AIFs available in India currently include:
 ASK AMC: ASK Absolute Return
 ITI AIF: ITI Long-Short Equity
 ICICI Pru AIF: ICICI Pru Long-Short AIF
 Tata AIF: Tata Absolute Return | Tata Equity Plus Absolute Return
 Alta Cura AIF: Alta Cura AI Absolute Return Fund
Each of these firms & strategies have their own distinct pedigrees, risk-reward &
investment styles, which are discussed in greater depth through this post.
Our Ranking of Long-Short AIF AMCs/Providers
Not all AMCs that run long-short AIFs have the same level of pedigree when it
comes to managing long-short strategies. In our opinion, the following is the
ranking we ascribe to individual providers:
 ASK Alternatives (emerging leader): leader with a strong investment
policy and a highly skilled in-house team, has further solidified its position
with Blackstone acquiring a majority stake in its asset management
business. Its alternatives division is strengthened by strategic talent
acquisition and a strong commitment to nurturing top-tier investment
professionals.
 ITI AIF (a worthy second place): ITI AIF is headed by Rajesh Bhatia,
who comes into ITI having substantial experience managing a similar
strategy at an FII. Their strategy is well-defined and they have established
 a track record, that clearly demonstrates lower volatility than the
markets.
 Alta Cura AIF (credible new fund): Alta Cura AIF is founded by Raman
Nagpal (an experienced data scientist having established investment
credibility of his algos with over a decades experience at Accuracap). The
strategy is well-defined, and aims to earn high absolute returns via
market-neutral strategies.
 Tata AIF & ICICI Pru AIF (still to prove their credentials): Both Tata
& ICICI Pru AMC have launched long-short AIFs as well. The strategy
definition and performance track record are not as strongly established
relative to the other 2 providers. ICICI Pru AIF does have a relatively
longer-track record, but has a less experienced long-short manager. Tata
AIF is very young in long-short strategies, but their fund manager does
have prior experience managing long-short strategies.
The Risk-Reward of leading Long-Short AIFs
Each long-short strategy has their own unique investment philosophy and
manner of working, which leads to substantial differences in terms of the risk-
reward. In this section, we compare the risk-reward of different strategies to the
nearest traditional hybrid MF category, based on their defined/historical net-long
exposures.