Saturday 6th December 2025
Can liquid alternatives truly diversify in a crisis? A manager comparison across real market stress
in Alternatives, Markets
In a world of higher volatility and less reliable diversification from traditional asset classes, liquid alternatives have become an essential component in portfolio design. But do they actually diversify in a crisis — when it matters most?
Promising absolute returns, low correlation and daily liquidity, liquid alternatives appear on the surface to be an ideal solution for modern portfolios.
But do they actually diversify in a crisis — when it matters most? The COVID-19 crash in March 2020 and the inflation-driven bond/equity sell-off in 2022 provide real-world case studies to test this question. In this article, we examine how different liquid alternative managers performed under stress, and what advisers should consider when building resilient portfolios.
The Core Debate: Liquidity ≠ Diversification
Liquidity is often viewed as a virtue — especially in times of volatility. Yet in a crisis, liquidity can cut both ways. Listed alternative funds or open-ended daily-priced vehicles may face forced redemptions, mark-to-market pricing and sentiment-driven pricing pressure, undermining their intended diversification benefits.
True diversification is about uncorrelated return streams, not just structure or labels. Therefore, it’s critical to compare how different strategy types and managers behave when markets are under stress.
Manager vs manager: Real-world crisis performance
To assess how liquid alternatives perform under stress, Atchison has chosen five Australian-domiciled funds, each representing a distinct strategy type. These managers offer a diverse cross-section of the liquid alternatives landscape and provide a valuable lens through which to analyse real-world behaviour during periods of market dislocation.
| Strategy | Fund Manager |
| Trend Following | Man AHL Alpha (AUD) |
| Long/Short Equity | Regal Long Short Equity Fund |
| Currency/FX Alpha | P/E Global FX Alpha Fund |
| Absolute Return Multi-Asset | BMO Pyford Global Absolute Return Fund |
| Equity Income Alternative | Talaria Global Equity Fund |
Crisis 1: March 2020 – The COVID Liquidity Crunch
As markets collapsed in March 2020, most asset classes fell in tandem. Liquidity disappeared, credit markets froze, and volatility surged.
| Fund | March 2020 Return |
| Man AHL Alpha | 5.8% |
| Regal Australian Long Short Equity Fund | –35.1% |
| P/E Global FX Alpha Fund | 10.6% |
| BMO Pyrford Global Absolute Return | –2.3% |
| Talaria Global Equity Fund | –10.0% |
| S&P/ASX 300 (Benchmark) | –19.3% |
| World Ex-Australia (Benchmark) | –11.9% |
The March 2020 crisis revealed stark differences in how liquid alternatives respond under stress. While traditional equities suffered deep drawdowns — down 19.3% for the S&P/ASX 300 and 11.9% for global equities respectively — strategies with structurally uncorrelated return drivers proved their worth. Both Man AHL Alpha and P/E Global FX Alpha delivered strong positive returns, highlighting the value of systematic trend-following and currency-based strategies in periods of dislocation. BMO Pyrford’s conservative multi-asset approach held up well with minimal losses, while Talaria Global Equity, despite being equity-based, demonstrated relative defensiveness. In contrast, the sharp 35.1% drawdown from Regal Long Short Australian Equity Fund underscored that not all “liquid alternatives” behave defensively in a crisis — particularly those with directional market exposure. This reinforces the importance of understanding a strategy’s true return drivers rather than relying on labels alone.
Crisis 2: 2022 – Inflation Shock and the Death of the 60/40
In 2022, equities and bonds posted negative returns in tandem — one of the worst periods for traditional portfolios. Liquid alternatives once again had the opportunity to prove their worth.
| Fund | 2022 CY Return |
| Man AHL Alpha | 9.88% |
| Regal Australian Long Short Equity Fund | –2.30% |
| P/E Global FX Alpha Fund | 17.47% |
| BMO Pyrford Global Absolute Return | 3.43% |
| Talaria Global Equity Fund | 8.29% |
| S&P/ASX 300 (Benchmark) | –1.77% |
| World Ex-Australia (Benchmark) | –16.40% |
In 2022, a rare simultaneous decline in both equity and bond markets challenged conventional diversification, with the S&P/ASX 300 falling 1.77% and global equities (World ex-Australia) down a steep 16.40%. Against this backdrop, several liquid alternatives delivered meaningful resilience. Man AHL Alpha returned 9.88%, continuing to benefit from trend-following exposures to rising rates and falling equities, while P/E Global FX Alpha led the pack with 17.47%, reinforcing the strength of currency alpha as a structural diversifier. BMO Pyrford delivered a steady 3.43% through its conservative multi-asset approach, and Talaria Global Equity’s 8.29% return again demonstrated the effectiveness of income-oriented, quality equity strategies in volatile environments. In contrast, Regal’s Australian Long Short Equity Fund posted a negative return of 2.30%, highlighting the challenges of navigating sharp macro shifts with directional equity exposure. Collectively, the results affirmed that truly diversified alternatives — particularly those untethered to equity beta — can enhance portfolio robustness when traditional assets fail to deliver.
Implications for Advisers
These crises highlight the danger of relying on labels over substance. Not all “liquid alternatives” offer meaningful protection during drawdowns. Some replicate equity or credit beta with higher fees and less transparency.
For meaningful diversification, advisers must:
- Prioritise return source transparency and strategy structure
- Understand volatility, correlation, and liquidity dynamics
- Recognise that liquid ≠ resilient — especially under stress
