Barclays Global Investors and State Street Global Advisors, two of the world's largest money managers, are significantly expanding their hedge fund operations in response to what they say is client demand for portable alpha and absolute return strategies.
San Francisco-based BGI managed $15 billion in hedge funds as of Dec. 31, a respectable number but just 1% of its total assets. SSgA, Boston, managed about $3 billion in single-strategy hedge funds as of Dec. 31. SSARIS Advisors LLC, Stamford, Conn., a majority-owned subsidiary of the State Street Global Alliance (a joint venture between SSgA and the €168 billion Stichting Pensioenfonds ABP, Heerlen, Netherlands), managed an additional $1 billion in hedge funds and funds of funds. In total, that's only 0.27% of SSgA's global assets.
Executives at both companies are driven by an urgent need to hang on to institutional clients now — or soon to be — searching for real alpha generation.
Both firms have big enhanced indexed businesses that already provide alpha generation for institutional clients.
BGI, strictly an institutional manager, is building a hedge fund-of-funds operation that will launch strategies later this year. The fund-of-funds unit, known as the alpha management group, was created because the firm's internally managed, single-strategy hedge funds have been so successful, said Stan Beckers, managing director and the London-based head of the new unit.
BGI managed $13.5 billion in market neutral, equity and credit funds at the end of 2005; these single-strategy funds are closed to new investment. A multistrategy hedge fund launched last May attracted $1.5 billion in its first seven months and soon will reach its upper capacity limit of $3 billion, Mr. Beckers said.