Absolute Alpha to choose alternative beta provider

Institutional and retail hedge fund-of-funds manager Absolute Alpha will aim to make an ‘alternative beta’ allocation towards credit and fixed income arbitrage strategies before the new year, and has narrowed its search to a shortlist of two providers.

“We’ve made a decision to allocate to fixed interest arbitrage as alternative beta,” Shawn Richard, Absolute Alpha chief executive officer, said. The manager will choose among contenders including Barclay Global Investors and Merrill Lynch, who both provide currency index vehicles that aim to exploit price inefficiencies in the relationships between high and low-yielding currencies. “We will redeem out of credit exposures and put it into one or two alternative beta strategies,” Richard said. “We want to use it to get exposure to strategies without manager risk.” Richard said alternative beta vehicles charged lower fees than active hedge fund managers, were transparent and, in the event of a crisis affecting hedge fund strategies, were liquid, meaning investors would not be subjected to lock-downs on redemption requests. “And you can short the strategy and beat those guys stuck with the manager,” he said. “If we get could get access to the factor index we could short it, or offset one manager with the beta. We could profit from the asset class whether it’s attractive or unattractive.” In July, Merrill Lynch launched a synthetic hedge fund replication platform which does not invest in actual funds, such as the ‘tracker funds’ run by Credit Suisse Tremont and other providers, but in a range of asset class derivatives designed to replicate the mean hedge fund performance. Richard said Absolute Alpha aimed to hold both alternative beta strategies and active hedge fund managers in its portfolio. Locally, the firm manages $60 million in wholesale mandates and $40 million in retail money. Earlier this year, it acquired one of the flagship funds run by New York-based Paradigm Asset Management, giving the manager a presence in America and access to further investment personnel, technologies and other managers. “They were one of the first fund-of-hedge-fund managers in the US. We’ve got great access to managers through the acquisition,” Edward said. Including its offshore operations, the manager has $750 million in funds under management.