Comments on: Watson Wyatt: Investment managers now dominate the “pension fund food chain” http://allaboutalpha.com/blog/2008/07/21/watson-wyatt-investment-managers-now-dominate-the-pension-food-chain/ Hedge funds, portable alpha, 130/30 and alpha-centric investing Fri, 26 Feb 2010 22:59:35 +0000 http://wordpress.org/?v=abc hourly 1 By: Alpha Male http://allaboutalpha.com/blog/2008/07/21/watson-wyatt-investment-managers-now-dominate-the-pension-food-chain/comment-page-1/#comment-125914 Alpha Male Mon, 21 Jul 2008 22:49:51 +0000 http://allaboutalpha.com/blog/2008/07/21/watson-wyatt-investment-managers-now-dominate-the-pension-food-chain/#comment-125914 Since the link goes right to the file (through the free registration wall), try going to WW's research page first. (http://www.watsonwyatt.com/research/reports.asp) Sorry for the confusion. Since the link goes right to the file (through the free registration wall), try going to WW’s research page first.

(http://www.watsonwyatt.com/research/reports.asp)

Sorry for the confusion.

]]> By: Rob http://allaboutalpha.com/blog/2008/07/21/watson-wyatt-investment-managers-now-dominate-the-pension-food-chain/comment-page-1/#comment-125853 Rob Mon, 21 Jul 2008 17:44:17 +0000 http://allaboutalpha.com/blog/2008/07/21/watson-wyatt-investment-managers-now-dominate-the-pension-food-chain/#comment-125853 Anyone else having trouble pulling up the PDF? Only seeing the cover page when I download. Anyone else having trouble pulling up the PDF? Only seeing the cover page when I download.

]]> By: Walt French http://allaboutalpha.com/blog/2008/07/21/watson-wyatt-investment-managers-now-dominate-the-pension-food-chain/comment-page-1/#comment-125829 Walt French Mon, 21 Jul 2008 15:28:06 +0000 http://allaboutalpha.com/blog/2008/07/21/watson-wyatt-investment-managers-now-dominate-the-pension-food-chain/#comment-125829 <b><i>"...there can't be enough alpha to go around to all pensions because if there was, it would be</i> beta.</b> Don't pull up just shy of the finish line! Properly measured or attributed, the AVERAGE alpha is zero. For every investor who's pulling down $1million of alpha, there must be investors who are CONTRIBUTING the $1MM of negative alpha. Except, it's a bit worse: eyeballing your chart above, there's about 40bps of transactions costs to the average institutional investor, and if you assume that alpha is net of those costs, then the negative alpha side is 80bps shy of the $1MM. Meaning that you need pretty damn good selection skills to find the investment management approach that will supply positive alpha. Another observation: the predicted "shortage of talent" and "increasing use of absolute return [zero beta?] products" would seem at odds with increased transparency. An appetite for <b>claims</b> to deliver alpha, as opposed to <b>proofs</b> that a strategy <b>will</b> deliver alpha (which, technically speaking, is impossible), is the perfect setup for <i>less</i> "here's what we're really doing for our two-n-twenty." “…there can’t be enough alpha to go around to all pensions because if there was, it would be beta.

Don’t pull up just shy of the finish line!

Properly measured or attributed, the AVERAGE alpha is zero. For every investor who’s pulling down $1million of alpha, there must be investors who are CONTRIBUTING the $1MM of negative alpha.

Except, it’s a bit worse: eyeballing your chart above, there’s about 40bps of transactions costs to the average institutional investor, and if you assume that alpha is net of those costs, then the negative alpha side is 80bps shy of the $1MM.

Meaning that you need pretty damn good selection skills to find the investment management approach that will supply positive alpha.

Another observation: the predicted “shortage of talent” and “increasing use of absolute return [zero beta?] products” would seem at odds with increased transparency. An appetite for claims to deliver alpha, as opposed to proofs that a strategy will deliver alpha (which, technically speaking, is impossible), is the perfect setup for less “here’s what we’re really doing for our two-n-twenty.”

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