Fri, Apr 28, 2017
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Alternative Market Briefing

Other Voices: The alpha conundrum: why pension funds struggle to generate consistent alpha through allocation to active managers

Wednesday, June 18, 2014

By: Stanley Altshuller, co-Founder and Chief Research Officer at Novus

Pensions are faced with an ominous future of growing liabilities and declining long-term returns, a trend that could jeopardize a large number of pension funds. The low interest rate environment and stunted expected returns have increasingly led pensions to look toward alternative asset classes such as hedge funds for more robust absolute returns. In the last decade we have, on average, seen pensions increase allocations to hedge funds. By some estimates pensions now allocate over 5% of their assets to hedge fund managers and the number is growing. But can pensions choose the managers that will outperform the market or the average hedge fund manager? For many funds generating alpha in the space has been a continuing struggle. In our seven years of working with large allocators such as public pension funds, we have observed many reasons for underperformance in active management. The problem is not unique to pensions; endowments, sovereign wealth funds and other private funds often suffer the same hardships.

Perhaps the alpha problem can be examined in three stages of the hedge fund investment process for a pension:

Screening:

  • Selecting managers for closer evaluation from the universe
  • Monitoring: Analyzing the manager’s investment process pre- and post-allocation
  • Aggregating: Understanding exposures and risks across an entire portfolio of fund investments. Screening

    ......................

    To view our full article Click here

  • Today's Exclusives Today's Other Voices More Exclusives
    Previous Opalesque Exclusives                                  
    More Other Voices
    Previous Other Voices                                               
    Access Alternative Market Briefing

     



    • Top Forwarded
    • Top Tracked
    • Top Searched
    1. Opalesque Exclusive: Ex-Man manager combines sustainable investing with AI/ML[more]

      Benedicte Gravrand, Opalesque Geneva for New Managers: Dr. Richard Bateson, quant fund manager and physicist, has recently

    2. Other Voices: "Winner-take-all" dynamics and hedge fund investing[more]

      A growing stream of thinking in microeconomics is the concept of "winner-take-all" dynamics. The idea seems simple. A combination of networking economics and classic economies of scale creates situations where there are just a few dominant firms or economic agents who are able to capture significant

    3. Investing - How Chipotle's comeback attracted big data robots and value investors alike[more]

      From Forbes.com: When William Ackman's ailing hedge fund Pershing Square Capital Management bet $1 billion on shares in Chipotle Mexican Grill beginning in July 2016, the stakes couldn't have been higher. Pershing Square was reeling from what would eventually be a near $4 billion loss in drugmaker V

    4. Service Providers - Colemore launches fee tracking service for limited partners[more]

      Following Colmore's successful launch in January 2017, the firm has announced the launch of FAIR.. FAIR is designed to help private equity investors independently validate fees and incentives charged by underlying managers, saving time and providing an extra level of comfort. There is a glob

    5. Regulatory - 'Fist bumps' at hedge funds over Trump's tax plan[more]

      From Reuters.com: U.S. hedge fund managers began warming to President Donald Trump soon after his surprise election ignited a powerful stock market rally. Now, his dramatic tax cut plans give them even more reasons to cheer. Trump, looking to make good on pledges for sweeping tax reform, on Wednesda