The line between hedge funds and long-only money managers will continue to be blurred, industry executives say, as long-only managers ask clients to allow them access to the same tools used by hedge fund managers for years.
For pension clients, giving long-only managers that freedom means getting additional sources of alpha from their current managers.
"I've been telling our clients that the future of active management will reveal a convergence between hedge fund managers and long-only managers," said M. Barton Waring, managing director and head of the client advisory group at Barclays Global Investors, San Francisco. "Long-only managers have to get a higher yield per unit of skill, where they have skill, if they are to survive. So that means finding ways to avoid some or all of the long-only constraint."
Among the most prevalent of these "hedge fund-like" strategies are 120/20 and 130/30 portfolios, which short a small portion of the stocks of a particular index to enhance returns. Other hedge fund-like tools include futures, which are prevalent in portable alpha strategies; leverage; interest rate swaps; and equity and credit derivatives.
Firms such as JPMorgan Asset Management, New York; State Street Global Advisors, Boston; UBS Global Asset Management, Chicago; Goldman Sachs Asset Management, New York; and PanAgora Asset Management, Boston, all have begun marketing strategies in the past year that use hedge fund-like tools.