However, Guy Stern, head of multi- asset fund management at Standard Life, warned super funds that “nothing should be in the portfolio that you don’t expect to be a rewarding investment
– otherwise you’re wasting your risk budget”.
Global macro is a discipline whose exponents are newly confident of its risk budget efficiency.
The head of alternative investments at State Street Global Advisors, Ric Thomas, said an approach combin- ing typical ‘convergent’ strategies with ‘divergent’ strategies – those which aim to profit when fundamental valuations are ignored by the market – reduced portfolio volatility and negative outliers and increased the chances for capturing upside “fat tails.”
The chief operating officer of Gra- ham Capital Management, Robert E. Murray, said his firm’s ‘systematic global macro’ approach, which uses systemised trading algorithms to trade the global liquid futures and foreign exchange
markets, exhibited the opposite charac- teristics to most hedge funds styles in that it had a return profile with positive skew and low kurtosis.
When assessing risk, funds should not aim to manage their physical exposures nor their economic exposures but rather their market risk exposures, Stern suggested.
Correlations came in for their share of criticism in the light of their move- ments which were largely in step during the height of the crisis last year.
“You can’t trust correlations because they’re linear,” Jon Glass, the CIO of Media Super, said. And more strongly: “Correlation is a fraud in our industry,” Ray King, director of Sovereign Invest- ment Research, said.
And while hedge funds of funds (FoFs) were being increasingly scruti- nised by large super funds even prior to the crisis, because of their extra layer of fees, they too are adapting to the post- crisis environment.
Randall Dillard, the CIO and co- founder of Liongate Capital Manage- ment, said that his firm was one of the first to be very active in portfolio construction, which other hedge FoFs were now doing.
Prior to the crisis there was little competition in the trading strategies of hedge FoFs. Clients could not get out because they had nowhere else to go and were worried they might not be able to get back in.
Hedge FoFs were also looking to better manage liquidity by clearly segre- gating clients on the grounds of liquid- ity through increasing use of separately managed accounts (SMAs).
But SMAs were very expensive to run and most super funds were too small to run their own programs.
