Fri, Aug 1, 2014
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: Kyria Capital Management bets on women hedge fund managers[more]

      Bailey McCann, Opalesque New York: As hedge fund assets top $3 trillion, and long/short strategies get more crowded than ever, with every manager hunting for even the tiniest bit of alpha, a new firm has emerged that claims its own edge – women. A recent Rothstein Kass study showed women-owned a

    2. Hedge fund manager Winton Capital making headway with long-only strategy[more]

      From PIonline.com: North American investors are helping Winton Capital Management Ltd. make progress — albeit slowly — toward its founder's goal of becoming a $100 billion company. The firm's ticket to quadrupling its assets under management is unlikely to be one of its scientifically designed manag

    3. Opalesque Roundtable: Success in hedge fund marketing not linked to performance, but investor appetite[more]

      Komfie Manalo, Opalesque Asia: Success in marketing a fund is not linked to the performance, but to investor appetite, to the way you can market the fund, and to how much time you can spend to raise assets, said Antoine Rolland, the CEO of incubator and seeding firm

    4. Opalesque Radio: Now is a good time to buy protection cheaply in the options market[more]

      Benedicte Gravrand, Opalesque Geneva: Investors are showing an increased interest in risk parity funds and strategies, Opalesque reported last year. Risk parity strategies have the

    5. The Big Picture: Charlemagne Capital smoothes risk out of frontier market investing with portfolio approach[more]

      Benedicte Gravrand, Opalesque Geneva: Opalesque recently talked to one of the portfolio managers of the Oaks funds, which are emerging and frontier market hedge funds focusing on equity long/short with a directional approach. They are run by