Robert D. Newland, deputy director of investments and chief investment officer at the $7 billion Indiana State Teachers' Retirement Fund, Indianapolis, said transparency is the biggest difference between the two strategies.
"You could say (they) are similar in terms of mechanics. If that's the case and you want to call it a hedge fund, that's fine. But give me a definition of the term hedge fund? If anyone can do that, then they would have found the fountain of youth."
Mark Carhart, co-CIO of quantitative strategies at Goldman Sachs Asset Management, New York, one of the largest GTAA managers in the United States with about $29 billion under management in the strategy, agreed there's not much difference between the two strategies. "What is a global macro hedge fund, what is a commodities trading adviser and what is GTAA? All of these managers trade the same basic securities — developed stocks, bonds and currencies.
"Can you name some big global macro hedge fund managers?" he asked. "They're Mellon Capital Management, GSAM, First Quadrant, etc. They are all the big GTAA managers."
Mr. Carhart, however, did say there was one big difference: GTAA managers are measured against a benchmark and, therefore, are more risk-averse than global macro hedge funds.
Jay Kloepfer, vice president, manager of quantitative strategies at Callan Associates, San Francisco, said that GTAA funds are generally cheaper and more transparent than global macro hedge funds. Since the early 1990s, they (GTAA funds) have become more actively managed; previously, he said, they were considered more passive or enhanced. The shift has made GTAA funds more like global macro hedge funds because they are no longer viewed as simply an overlay strategy, but a strategy that is meant to produce alpha.
He also pointed out that GTAA has traditionally been viewed by institutional investors as a tightly risk-controlled, overlay strategy to asset allocations already in place.
"Somebody must pull the trigger on making the bets" in GTAA strategies, said Mr. Kloepfer. "It's funny and interesting and could be somewhat counterintuitive that all those quantitative shops (that typically manage GTAA strategies) oppose active management in favor of enhanced or passive management, yet GTAA could be an active bet.
"Plan sponsors are looking at GTAA as more of a quantitative risk-controlled approach by brand-name advisers that has the potential to generate hedge fund-like returns — it's something that's more along the lines of a global macro hedge fund but in a more risk-controlled environment."
GTAA strategies generally use derivatives, such as futures and options, and makes currency bets to take advantage of inefficiencies between countries, markets, and asset classes. A global macro hedge fund generally does the same thing but, on average, makes fewer bets than a GTAA strategy.