European Pension Plans to Teach Clinic on Alpha-Centric Investing
Oct 16th, 2006 | Filed under: Institutional InvestingBy: Beatrix Payne, Pensions & Investments
Published: October 16, 2006
Dutch plan PGGM and Danish plan ATP have both adopted alpha/beta separation strategies.
According to P&I, the $100 billion PGGM plan has become “one of the first European institutions to manage assets according to alphas and betas.”
CIO, Leo Lueb eschews traditional asset class investing that effectively bundles “beta”, “enhanced beta”, and “alpha” in favour of a trifurcated approach. Says P&I:
“Until now, the plan would have had one manager trying to implement the three approaches in each asset category, he said. The new approach opens a whole universe of investment strategies that the plan could not embrace under the previous arrangement because investments were managed according to traditional asset class definitions, he added.”
Related Link: PGGM’s Absolute Return Strategy
P&I says that one of the only other pensions in Europe to adopt this approach is the Danish ATP pension program.
Henrik Jepsen, ATP’s CIO for Beta (note the cool title) tells the newspaper:
“ATP’s hedging portfolio is an overlay on the plan’s liabilities and uses derivatives to manage interest rate risks. The bulk of the investment portfolio is in beta strategies, and a couple of billion kroner are invested in alpha-generating strategies such as long-short equities, global macro strategies and fixed income…”
As Lueb points out, the separation of alpha and beta needn’t be physical. Alpha can be generated from a notional amount of assets (similar to the Canada Pension Plan overlay program).
“It’s hard to say how much assets are invested in alpha because we look at it in terms of value at risk. That’s one of the benefits of being able to decouple them (alpha and beta), as you don’t necessarily need underlying assets to generate alpha, said Mr. Lueb.”
He also suggests to P&I that this strategy will keep the plan’s managers on their best behavior:
“In time, existing managers might find themselves having to work harder to keep PGGM mandates. There will be more competition in terms of alpha-generating opportunities that we will be able to address and take advantage of. So in that sense, the competition will increase…”
Read Full Article (with permission from P&I)
Addendum: While these two pension plans are putting their expertise on display for us all, there is no actual “clinic” happening (unfortunately). To those of you who speak English as a second language: that’s just an expression. Apologies for any confusion. My bad. (D’oh! Another poor choice of words).
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[...] Notwithstanding the recent hype about alternative beta, Jelie Beenan is just about the only guy in the world with the actual title, “Head of Alternative Betaâ€. His employer PGGM (see previous posting) manages 70 billion Euros for Dutch social services workers. And taking its cue from many aspects of Dutch society, PGGM seems to be comfortable pushing frontiers of accepted norms. [...]