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Alternative Market Briefing

Risk parity funds gain traction with investors, new paper looks at performance

Monday, July 29, 2013

Bailey McCann, Opalesque New York:

Investors are showing an increased interest in risk parity funds and strategies. On the retail side, assets are piling in - just over $16bn has gone into risk parity funds just in the last year, according to Lipper. Risk parity strategies have their roots in some of the biggest funds out there including Bridgewater, however, the recent rise in investor interest has been during a low interest rate environment. Now, as rising interest rates are on the horizon, Salient Partners, is out with a new paper on how these strategies might perform during a rising rates regime.

Salient Partners is a Texas-based $18bn asset manager, which most recently launched an alternative beta fund. According to Lee Partridge, Salient’s Chief Investment Officer, the firm wanted to take a look at how these strategies would hold up during a rising rate environment, as a number of investors haven’t experienced a regime of significant and sharp increases.

To do this, the paper goes back to 1971, looking at the period between 1971 and 1982 the last real rising rates regime. "We know what happened in 1994, and 1994 wasn’t that bad," Partridge tells Opalesque. "If you look at risk parity strategies in that period, they underperformed but, we don’t think 1994 is as analogous to present day, as the rate rises starting in 1971."

The paper br......................

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