Tribeca’s Fenton points out that the Australian share market has a greater skew towards large-cap stocks than the US, so more shorting is required for optimum efficiency. But once you get past about 130:30 or 140:40 the increase due to portfolio efficiency starts to diminish and the increase due to leverage is more dominant. JANA Investment Advisers was an early supporter of active extension strategies and has its own long/short fund of funds for retail investors, on the MLC platform, for both Australian equities and global.

The JANA Australian equities long/short fund has three quant managers – SSgA, Perpetual’s Q1 team and Acadian – but John Coombe, JANA executive director and head of consulting, Sydney, says the firm is looking to diversify with the addition of fundamental managers. JANA has put about 10 per cent of its Australian and global equities for which it has discretion, in its implemented consulting service, into the 130:30 fund of funds. JANA’s first experience in Australia was with BGI’s market neutral fund, launched in 2001. Market neutral funds have equal longs and shorts, giving them a beta of zero.

Coombe says JANA wanted the fund to be equitised to make it more palatable to clients, which BGI did. The equitised long/short fund is the equivalent of a 180:80 fund, with the beta coming from a futures overlay for clients who want that. The fund has outperformed all others over longer periods but has been closed to new money for some time. Last year BGI launched a detuned version, a proper 130:30 fund, for existing clients. This fund has some capacity still available. There is also a version for tax-exempt clients.

The SSgA experience is more recent but no less successful in business terms. SSgA launched its Australian ‘Alpha Edge’ fund in late 2004. Goodlad says the available capacity of $1 billion was oversubscribed about two-and-a-half times in just a few weeks.

The strategy was then exported to other SSgA regions and a global version launched in 2005. The Global Alpha Edge fund has raced away to $US12 billion in funds under management, increasing three fold last year alone. Coombe says JANA did a lot of work on equitised long/short funds, after “backing” the BGI fund in 2001. “AustralianSuper (then ARF) and some others started to look around for other managers offering leverage in the Australian market. This spawned discussions with overseas managers, such as LSV, Acadian, AXA Rosenberg, Goldman Sachs and BNY Mellon, as well as SSgA,” he says. “We had a taste of it and it was good. It was like wine; if it’s good you’ll want another bottle.”