Hedge funds aren’t buy-and-hold institutional investors, nor are they the shortest-term market participants like high-frequency traders. Rather, they are somewhere in between – actively managing money but not constantly turning over positions.

The push-pull of short-term demands versus long-term considerations represents a conundrum for alternative investors, especially in the current market in which ‘noise’ seems to be as loud as ever. For Oklahoma City, Oklahoma-based Covenant Global Investors, it is a front-burner topic for the second half of 2012.

For global macro investors, “the biggest challenge will be a combined effort of managing short-term client performance anxieties, while simultaneously staying focused on the horizon of opportunity rather than on the current month, quarter, or even yearly performance figures,” said Steve Shafer, chief investment officer at Covenant, which manages $320 million. “Too many managers will continue to get whipsawed as they ‘trade’ the current environment instead of ‘investing’ for the one that is slowly headed our way over the next one-, two-, and three-year periods.”

“Client anxiety and subsequent pressure leads managers to stray from their discipline and optimal point of focus on the horizon in an effort to generate short-term returns that satisfy improperly calibrated client expectations,” Shafer continued. “This is a danger that sacrifices the value of a fund franchise in exchange for a potential short-term pyrrhic victory.”

Another challenge for hedge funds will be on the regulatory front, including registration requirements and more scrutiny on returns. Market participants have said the recently passed JOBS Act that allows hedge-fund advertising will help, but on balance regulation is a clear headwind for the sector.

Hedge funds in have gained less than 1% on average so far this year, according to Dow Jones Credit Suisse data. That compares with an increase of about 6% for the benchmark S&P 500. Global Macro strategies have gained about 3%, better than hedge funds overall but still below the S&P 500.

In Shafer’s view, it is a near-certainty that there will be at least pockets of volatility in the second half of the year. A sustained increase in asset prices can’t be expected until “macro clarity or investor fatigue with macro-oriented issues sets in,” Shafer said.

Either outcome “will lead investors to re-train their focus on fundamentals, which in our view are surprisingly more attractive than current pricing and macro headlines may lead one to believe,” Shafer said. “Our emphasis on the term ‘focus on fundamentals’ includes realization that the U.S. economy, while not robust, is relatively stronger than the Eurozone, Britain, and Japan.”

“We believe the U.S. economy is in the midst of a mid-cycle slowdown rather than on the verge of another recession,” he added. “Also, and of greater importance, is the fact that China is not headed toward a hard landing.”