Intech head of alternative investments Michael Coop says there are four underlying managers (which he says can only be named for clients). They are not sharing equal portions of the $190 million currently in GTS from a number of Intech clients. Four GTAA funds in the Intech fund, three funds share Asset’s $55 million: the message is that diversifying within the diversifier is essential. Even for its relatively small allocations, one GTAA manager is not only not enough, it’s too risky.

Coop says the Intech fund has selected four managers that compliment each other. Clarke from Mercer says the GTAA strategy works better as a package: “They can at times have big losses – these are at the aggressive end of strategies the institutional investor might use – so it’s important to have good diversification. I’d never hire just one GTAA manager.” Leo de Bever, chief investment officer of Victorian Funds Management Corporation, would rather not award money to a specialist manager at all. It’s not that he does not believe in the GTAA strategy – on the contrary – it’s simply he would rather see a fund do it internally. Also he is skeptical of a GTAA manager which claims it can time or predict the markets – a key plank in the GTAA ‘sell’ argument. “You can’t time markets, anybody who thinks they can time markets over a six or twelve month or two year basis is probably dreaming,” he says.

De Bever says that for a large superannuation fund – even half the size of VFMC’s $41 billion for argument’s sake – a small allocation of say $200 million in a GTAA fund would probably not be relevant to the overall alpha generation in the long term. But that shouldn’t deter such a fund from making its own TAA decisions, such as taking some foreign exchange exposure or changing the asset mix exposure in a certain direction.

He says the key to such decisions is to let them be played out over longer periods of time than what the label “tactical” suggests. “One of the arguments against doing tactical asset allocation is that it requires a fair bit of skill assessing risks that are far from unambiguous in terms of time horizon. A truly long term investor should be able to sustain short term adverse consequences from taking positions that may take some time to come to fruition,” he says. “But there is a tendency after a year or so to say, why did we do that? It isn’t paying off. But sometimes it takes two, three, four years for some strategies to be validated.”

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