Research Affiliates subadvises Pacific Investment Management Co.'s All Asset Strategy, a GTAA portfolio, which has $19 billion in assets. In the first half of 2008, the portfolio garnered about $3.5 billion in new assets, compared with $1.5 billion for all of 2007, Mr. Arnott said.
That strategy returned 6.13% in the year ended June 30; 6.37% annualized for the three years; and 8.56% annualized for five years, according to data from eVestment Alliance, Marietta, Ga. eVestment benchmarks the strategy to the Lehman Brothers U.S. Treasury Inflation Protected Securities benchmark, which returned 15.1% for the year ended June 30, and an annualized 5.61% and 5.99% for the three- and five-year periods, respectively.
Unofficially, the strategy is benchmarked against the Consumer Price Index plus five percentage points, said Mr. Arnott. The CPI was up 4.9% in the 12 months ended June 30.
Many of these strategies are quantitatively based and were hurt during the credit crunch. Quant models generally rely on historical data and will underperform in unusual market conditions.
“The last 12 months was a difficult period for us,” said Thomas Hazuka, vice chairman at Mellon Capital Management Corp., San Francisco, a quant shop. The firm runs a $27.3 billion Global Alpha Low Restriction Composite portfolio, a GTAA portfolio that's a composite of the firm's various strategies. (The asset figure includes overlay exposures.)
The spike in oil prices, decreased interest rates after the credit crunch and the surge in commodity prices all “put the wind in front of us,” said Mr. Hazuka.
Mellon's composite portfolio was down 9.19% for the year ended June 30, underperforming its custom benchmark by 782 basis points. But in the three- and five-year annualized periods, the strategy outperformed its benchmark by 135 basis points and 260 basis points, respectively, according to data provided by the firm.
Outflows have come mainly from high-net-worth European investors, while institutions generally have stuck with the firm, Mr. Hazuka said. Officials at the firm declined to provide data on flows.
At DB Advisors, New York, net inflows totaled $8 billion in the first half of 2008 vs. $7 billion at the same time last year. This year's inflows are split evenly between new and existing clients, said Janet Campagna, managing director and head of the quantitative strategies group at the firm, which is the institutional asset management division of Deutsche Bank AG. The firm manages $12.5 billion in GTAA strategies.
According to the Eager Davis Holmes data, the most active institutional investor this year has been the $110 billion Texas Teachers system, which placed $1 billion each with four managers that serve as strategic partners. They are BlackRock Inc., JPMorgan Chase & Co., Lehman Brothers Asset Management and Morgan Stanley Investment Management, all new York-based firms.
The Texas fund is taking a slightly different approach to its asset allocation strategies. “The best way to think of the four funds is that they are very broad mandates that resemble the public portion of the total fund's asset allocation,” said spokesman Howard Goldman. “We are using the four firms as a global headlight system to identify opportunities and risks across the global investment landscape that we can use to direct the investments of the entire funds,” he said.
The Louisiana system recently added a new 5% allocation to GTAA and hired Bridgewater Associates Inc., Westport, Conn. The firm runs about $450 million for Louisiana, said Robert Beale, chief investment officer. GTAA was added to “further diversify the plan,” he said.
Illinois Teachers is searching for a GTAA manager to initially run $500 million. Fund officials are trying to reach the system's 7% target allocation to GTAA, said Eva Goltermann, spokeswoman. The pension fund now invests $1.5 billion in GTAA strategies. CIO Stan Rupnik was not available for comment.
For some, the verdict is still out on GTAA. There's “not a lot of proof yet” that giving managers so much leeway will automatically lead to high returns, said Alan Biller, president of consulting firm Alan D. Biller & Associates Inc., Menlo Park, Calif.
Contact Raquel Pichardo at [email protected]