130/30 Investing: Freedom of Expression
Dec 10th, 2006 | Filed under: 130/30This is the second installment of notes from Alpha Male’s recent road trip to the Big Apple to attend Institutional Investor’s Alpha Generation Forum last week.
Ingrid Tierens of Goldman Sachs has heard just about every name there is for 130/30 strategies”. In fact, she told an audience of portable alpha practitioners last Thursday that one of her clients is now conducting a contest to come up with the best name for this long-only/hedge fund hybrid approach to investing.
Tierens wasn’t the only speaker at this event who was particularly interested in what we at AllAboutAlpha.com call 1X0/X0 strategies. Tony Foley, head of quantitative research at hedge fund behemoth D.E. Shaw and Charles Lemonides, CIO at ValueWorks LLC also addressed this topic.
More Efficient Than Long-Only?
Some attendees at the conference asked what was so magical about 130/30. Why not 160/60 or 110/10? We’ve been wondering this ourselves.
To continue reading this article please login (at the right) or click here to learn more about accessing our archives.
[…] To add to the nomenclature confusion, 1X0/X0 investor Calpers sees the strategy as essentially long-only and has tapped Analytic Investors to manage what it calls simply “reducing constraints around managers that are highly skilled”. (Sounds like they’ve been talking to Ingrid Tierens of Goldman - Analytic Investors’ co-manager on the account.) […]
[…] It is often said that the ability to freely invest both long and short provides managers with an opportunity for “double alpha”.  The authors of this paper suggest that this ability increases returns regardless of the manager’s previous experience. (See this posting for potential support for this position from personnel at Goldman Sachs and hedge fund manager D.E. Shaw.) “…due to significant differences in strategy (like the ability to capture alpha on the long as well as the short side and the ability to manage risk better), hedged mutual funds will outperform “non-hedge†(traditional) mutual funds. We find strong support for the strategy hypothesis. In particular, we find that despite higher fees and turnover, hedged mutual funds outperform traditional mutual funds by about 3% per year, on a fee- and risk-adjusted basis.” […]
[…] We just don’t see the difference between 130/30 and buying a “beta one” ETF with a market neutral hedge fund as a side dish (as in, “You want fries with that?”). Aside from a few academic arguments, the debate about 130/30 is one of perception, not reality; communication, not substance; and marketing, not finance.   […]
[…] SSgA isn’t just the latest 130/30 bandwagon-jumper. Sean Flannery (right), CIO Americas at SSgA is obviously a disciple of Roger Clarke and Harindra de Silva - whose research extended the Fundamental Law of Active Management and paved the way for the 130/30 pitch. […]
The benchmark problem alone makes it hard to associate 130/30 with a traditional product you would find in the “equities bucket.” I also disagree with Ingrid Tierens on that point.