CASE STUDY
Alternative Risk Premia
UK Corporate Pension Plan | October 2016
Engagement at a glance
A UK corporate pension plan sought a comprehensive review of the alternative risk premia manager landscape with a view to investing over £250m with 2 – 3 diversified Alternative Risk Premia (ARP) managers, in aggregate targeting a return of cash plus 3-8% per annum.
CLIENT-SPECIFIC CONCERNS
This was the investor’s first allocation to alternative risk premia. With a principal objective of diversifying an equity-rich portfolio, this client sought lower net exposure / market neutral approaches over more directional strategies. They also had a preference towards academically well-established premia as opposed to more esoteric or “practitioner” premia (see The Changing World of Alternative Beta). The inclusion of trend-following premia was viewed positively by the fund, despite its embedded directionality (we find this to be a dividing line among investors), given the strategy’s historically strong diversification potential.
Outcome
- The client did not want to restrict themselves to established ARP strategies, and was able to consider newer offerings. This made a significant difference in this sector, which has undergone a rapid expansion in terms of the number of products. This preference also fit well with the bfinance ethos of ‘reaching wide’ at the time of search, rather than restricting the scope to a previously established shortlist.
- Outcome-oriented assessment proved to be important in determining the managers that progressed to the later stages, particularly the risk / return profile and drawdown Fees we also an important consideration for this client: several offers were excluded as being simply too expensive for further consideration.
- Second stage analysis focused not only on the quality of the investment process and portfolio construction, but also on the efficiency of implementation. Key here was the ability to offer a thoughtfully constructed, broadly diversified range of premia using either existing firm scale, or a proven efficiency in trading both physical and synthetic instruments in order to implement these portfolios with minimised market impact.
- Ultimately, of the 12 managers considered in detail at the second stage, just 4 were seen face-to-face by the client, with 2 managers selected for investment.
Our specialist says
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Ultimately, the client achieved some extremely competitive fees. However, the search process revealed that even a perceived ‘low-cost’ space is not homogenously low cost. The ARP universe is somewhat unique in its positioning, transcending both the hedge fund / alternative space and the traditional asset management space, contributing to wide fee dispersion. Since this search, we have continued to see fee evolution within the ARP landscape, with new entrants able to offer early-bird discounts, and more established managers offering fee tiering for scale.
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United States, Chicago
220 North Green Street
Chicago
IL 60607
Telefoon: (312) 829-4353
Email: info@bfinance.com
-
Canada, Montréal
1250 Rene Levesque Boulevard West
Suite 2200, Montreal
Québec H3B 4W8
Telefoon: +1 450 902-4965
Fax: +1 416 560-7275
Email: info@bfinance.com
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Canada, Toronto
88 Queens Quay West
Suite 2500, Toronto
Ontario M5J 0B8
Telefoon: +1 (416) 560-7275
Email: info@bfinance.com
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United Kingdom
36 Queen Street, London
EC4R 1BN
Telefoon: +44 20 7747 8600
Fax: +44 20 7747 8600
Email: info@bfinance.com
-
Germany
Theresienstraße 1
80333 Munich
Telefoon: +49 89 55 29 59 00
Fax: +49 89 55 29 59 00
Email: info@bfinance.com
-
France
49, Avenue d'Iéna
75016 Paris
Telefoon: +33 1 45 02 64 00
Fax: +33 1 45 02 64 01
Email: info@bfinance.com
-
Netherlands
Symphony Offices - 26e verdieping
Gustav Mahlerplein 109-115
1082 MS Amsterdam
Telefoon: +31(0)20 794 61 00
Email: info@bfinance.com
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Australia
Level 8, 99 Elizabeth Street, Sydney
NSW 2000
Telefoon: +61 (0)2 8052 3930
Email: info@bfinance.com
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China
Level 20, Infinitus Plaza,
199 Des Voeux Road Central, Sheung Wan
Telefoon: +852 3953 7874
Email: info@bfinance.com