Campbell, a former proprietary trader at BT in the 1990s, says he is well aware of the questions investors have over fundamental managers which move into the shorting space. “Our style makes us well positioned for this fund,” he says. “Our approach is to cover about 95 per cent of the index through company research and our own valuations. At any one time we have stocks which look cheap and stocks which look expensive. Conceptually, we’re not doing anything new. It’s very easy to extend our methodology.”

Risk control measures include a 3 per cent cap on absolute short positions in any one stock and the shorts will be smaller bets than the longs. While this is UBS’s first long/short fund in Australia, the firm has been running similar strategies overseas for several years, including an Asia ex-Japan 130:30 fund from Singapore, where UBS has its regional execution hub. In the US, a survey by Pensions & Investments in April showed that 53 managers ran a total of $US66 billion in active extension strategies as at March this year, which was 22 per cent up from a similar survey last September.

The survey revealed the fastest growing of these strategies was that of fundamental manager JP Morgan Asset Management which had $US8.6 billion in 130:30 assets. Doug Burton, managing director of AXA Rosenberg in Australia, says that quant investing is not its own style; it is a way of implementing the insights. AXA Rosenberg’s models are not return-based factor analyses but rather look at current prices and relate these to a company’s current fundamentals, with a second model forecasting next year’s earnings. The firm focuses on 170 different business lines, or types of business, across about 21,000 companies for its global fund.

Over calendar 2007, AXA Rosenberg’s US 130:30 fund provided a positive 7.3 per cent above benchmark. “We were in a totally different performance space to the other 130:30 managers (for US equities),” Burton says. “This reflects the fact that our insights are also very different.” The quants have to be good at implementation because they tend to have a larger number of positions and higher turnover. AXA Rosenberg’s process, for instance, results in about 500 longs and 300 shorts. “We have a lot of ideas and there are easy substitutes for them,” Burton says.

Ian Manton-Hall, chief executive of Fortis in Australia, says investors liked the firm’s equities capability (the core fund is about 150 bps above benchmark for three and five-year periods to March) but because the 130:30 fund was to include shorting it was decided to make it more concentrated. “We thought that on the short side there might be a limit to what we could do,” Manton-Hall says. “So, we thought we’d go concentrated on the long side.” The fund, seeded with internal money in 2006, currently has 25 long positions and nine short. Four out of the top 10 ‘wins’ for the manager in the past year were from shorts, the biggest being Centro.