Investment News - The Leading News Source for Financial Advisors

130/30 strategy a hit with pension plans

• 
• 
• 
• 
• 

By Darla Mercado

June 14, 2007 4:27 pm ET

Institutional funds are flocking toward 130/30 investment strategies, shifting away from long-only styles, but it may be a while before the retail side catches on the same way.

Searching for higher returns from equities, a number of large pension plans, endowments and foundations have joined the 130/30 movement.

“This is a regime shift that will accelerate the blending of hedge fund management and active management,” said Ric Thomas, managing director and head of the U.S. enhanced equity group at State Street Global Advisors.

The Boston-based investment management group held a briefing entitled “Demystifying 130/30 Strategies” in New York today.

This equity strategy exposes an entire investment to equities, placing 130% of the investment in long equities and 30% in short bets.

Proponents of 130/30 say that the strategy provides better distribution across a variety of sectors and companies, rather than focusing the investment on large-cap companies only. State Street often uses a cap-neutral style in its strategy, Mr. Thomas said.

However, the boon comes with its risks: It takes a nimble manager to handle a 130/30 portfolio, as the strategy calls for constant monitoring and the ability to handle status changes (mergers and spin-offs) for short selling companies. Returns may also be more volatile, he added. For this reason, some major investors are still wary of taking on this hedge fund-like strategy.

While competitors, such as Russell Investments, have already rolled out long/short mutual funds, State Street is reluctant to jump into the 130/30 pool with its retail investors.

“We’re seeing that retail investors and mutual funds will begin converting from long-only management,” said Mr. Thomas, adding that a retail strategy was “possible.”

• Email
• Print
• Share
• RSS
• Reprint