Executives at UBS Global Asset Management also are convinced of a seismic shift. "What we're doing is trying to move away from the traditional part of the industry toward the greater flexibility of the hedge fund world, with long/short strategies, derivatives, leverage, if necessary. We are pushing a view of an investment portfolio as a collection of risk exposures, not of asset classes," said Brian Singer, head of global investment solutions. "It's really a disruptive innovation of the alternative space in some ways; disruptive to hedge funds, but supportive for traditional managers and very good for investors."
Mr. Singer said UBS was driven to look to the middle ground between market-neutral hedge funds and traditional long-only portfolios to satisfy client demand for positive returns in a low market return environment. UBS developed an absolute return strategy in 2002 for a U.K. client and then offered the strategy more widely in 2003. UBS' two flagship absolute return strategies — Dynamic Alpha and ARS Bond — combine hedge funds of funds, internally managed hedge funds, private equity, real estate and traditional asset classes.
AIG Global Investment Group's strategy draws on the company's 46-year history of managing alternatives within the general account of its parent company, American International Group Inc., New York, said Steven Guterman, senior managing director and global head of business development.
Mr. Guterman said the insurer has a very large fixed-income portfolio that matches assets and liabilities, but has always set aside a portion of the portfolio for alpha generation. Because AIG was such an early entrant in the insurance arena in emerging market countries, investment in private equity and opportunistic real estate was necessary to offset insurance liabilities in these countries, he said. AIG made its first private equity investment in Asia in 1960. Investment in hedge funds and real estate began in the early 1980s. Disparate investment units within AIG were brought together in 1995, and in 2001, AIG Global Investment Group began marketing in earnest to external clients, said Mr. Guterman. Growth has been swift: in 2001, asset flow from outside clients was $1 billion; in 2004, it was $10 billion; and in 2005, it was $13 billion.
"Our message to the market, our tag line is ‘investor to investor.' Our clients are getting a slice of exactly what we do for ourselves," Mr. Guterman said. "We tend to develop good investment ideas for AIG which work well for others. We are looking for the same less correlated asset classes for the same reasons," he said.
Most of AIG's clients are very large investors who come to AIG for more customized solutions to fit a particular portfolio niche, rather than smaller investors seeking off-the-shelf approaches, Mr. Guterman said.