Mr. Singer's view of the future of money management — laid out in a series of talks, interviews and articles — challenges the conventional wisdom.
One of the main messages Mr. Singer is driving home is to seek risks that are compensated. While beta, or market exposure, is not always rewarded, investors over time are paid for taking risks.
"Beta is cheap and low risk? How did we get it completely reversed? Investors must remember that risk is the currency that pays for the returns," he wrote in a recent client newsletter.
Alpha, on the other hand, is not compensated. At best, finding alpha is a zero-sum game because for every winner there must be a loser. After subtracting the costs of management fees and transaction costs, alpha actually is a negative-sum game, asserted Mr. Singer, echoing the views of many investment experts.
Yet, many investors are intent on finding as many sources of uncorrelated risk as possible on the assumption that is a good thing.
Hedge fund managers are saying: "Give me your money. I'll take it to Monte Carlo and collect my fee," Mr. Singer in an interview. "This is indicative of an industry that is flailing."
Nor is the traditional method of allocating institutional assets viable. Managing assets in "silos" organized by market capitalization or investment style doesn't work because somebody has to manage the overall risk exposures, he said.
Instead, Mr. Singer views portfolio construction as akin to adjusting a graphic equalizer on a high-fidelity sound system, where the listener visually can adjust sound bands. With modern financial tools, a manager can increase or decrease the exposure to difference sources of risk, regardless of the asset classes from which they emanate.
This risk-based approach to asset allocation is changing the nature of investment management, he said. "Asset allocation is morphing into risk capital allocation," Mr. Singer wrote in his client letter.
Not only that, but liabilities also can be considered as "a collection of risk exposures," he added. Assets then can be used to hedge liabilities.
The risk-based approach marries the skills of both the traditional manager and the hedge fund manager. Traditional managers increasingly are being allowed to go short, use derivatives and employ leverage. Meanwhile, hedge funds are seeking returns from beta to meet high return expectations, Mr. Singer wrote.
"The distinction between hedge fund managers and asset managers will blur, as they use all these tools and capabilities," Mr. Singer said in the interview. The focus is shifting in favor of "assimilators" who can combined traditional money management with sophisticated risk management tools, he said.