Hedge funds are striking back against traditional money managers with the creation of their own 120/20 or 130/30 portfolios.
They are countering the long-only managers that offer these hedge-fund-like strategies as a way to compete with hedge funds.
D.E. Shaw & Co. LP, New York, announced last week that it is offering a "short extension" strategy — an active equity strategy that generally shorts 20% or 30% of a portfolio and uses the leverage to go long on 120% or 130% of the portfolio — as part of its institutional long-only platform.
Others hedge fund firms that sources said have created such portfolios are: Maverick Capital Ltd., Dallas; Bridgewater Associates, Inc., Westport, Conn.; and Millennium Partners LP, New York. Repeated calls to executives at these firms were not returned. These strategies are typically managed by quantitative managers and usually involve taking a traditional, active long-only equity portfolio and shorting a certain percentage of the stocks of an index within a given risk parameter. Quantitative managers have argued these portfolios give them more flexibility to gain greater returns for their clients: Their models will often tell them to give a negative weighting to certain stocks in their portfolio, but under a long-only constraint, the only way they can follow that advice is to just avoid investing in those stocks.