International and emerging markets equity strategies have helped some boutique quantitative managers bounce back from outflow and performance problems that have plagued most quant managers since the 2008-2009 financial crisis.
“Emerging markets have been a hot spot for quants,” said Artemiza Woodgate, senior research analyst at Russell Investments, Seattle. “There has been an increase in quant assets under management. Global and emerging markets (equities) have seen huge increases. Since the bad old days (of 2008), we've seen emerging markets AUM grow three- to fourfold. And global has doubled” in assets.
Institutional inflows across all international quant strategies have rebounded, particularly in 2012, according to data from eVestment LLC, Marietta, Ga. Recording three consecutive quarters of net inflows starting in the second quarter, international quant strategies gained $866.1 million for the year despite heavy losses in the first quarter, powered by a total of $10.18 billion in net inflows in the second, third and fourth quarters. In contrast, U.S. quant equity strategies saw net outflows of $27.2 billion in 2012 and only one quarter of net inflows between the first quarter of 2008 and the end of last year.
Churchill G. Franklin, CEO of quant manager Acadian Asset Management in Boston, said what's been most popular with institutions is “anything in frontier markets, emerging markets small caps. We have a whole suite of managed and low-volatility strategies.” Acadian managed $55 billion in assets all in quant strategies as of March 31.
Among recent Acadian hires: the $3 billion Chicago Policeman's Annuity & Benefit Fund allocated $120 million to an active international small-cap equity portfolio early this year; and PKA, Hellerup, Denmark, hired them for $450 million in managed volatility strategy for five Danish occupational pension funds with about 200 billion Danish kroner ($36 billion) in assets. Other Acadian hires include the $39.8 billion Los Angeles County Employees' Retirement System, Pasadena, Calif., which gave the firm an unannounced amount in active emerging markets equity last fall; and the $50 billion Massachusetts Pension Reserves Investment Management Board, Boston, which assigned the firm $60 million for active emerging markets equities in April 2012.
At quant manager Numeric Investors, Boston, which oversees $8.7 billion, “we've seen great performance across the board,” said Michael Even, CEO. “And we've not only seen interest where it's expected, like emerging markets and global equity, but also in places that have literally been silent for years, like large caps and market neutral.”
Dave Stewart, head of marketing and client service at Numeric, said a lot of the firm's inflows have come from current clients, “where we're expecting $1 billion in inflows in the first half of this year. Some of those clients did partial redemptions after 2008, but now those same strategies are growing and now some clients are doing a timing call by doubling down. The uptick in RFP and questionnaires in the first quarter surpassed all of last year.”
Current interest at Numeric is in emerging markets and international small caps and global equity, strategies the firm launched in the past three years, Mr. Stewart said. “Acceptance of quants overall has helped,” he said. “Quants have always done well in broad investible universes. They're ideal for large universe comparisons, and most find quant managers have a deeper knowledge of companies.”
Its $2.96 billion Global Core strategy had a total return gross of fees of 25.02% for the 12 months ended March 31 and an annualized 31.29% since its inception in January 2012. Its $218 million Emerging Markets Alpha strategy returned 15.01% for the year ended March 31, an annualized 11.4% over three years and an annualized 11.4% since inception in March 2010.
At Newark, N.J.-based Quantitative Management Associates, Prudential Financial's $80 billion quant business, “we've seen a definite uptick in business in both institutional and retail, an uptick in new clients as well, in part by the market coming back and also in part because of new business, particularly in international,” said Edward F. Keon Jr., QMA managing director and portfolio manager.
“We're gaining across the board, but particularly our international and emerging markets products have gotten traction. Across all mandates, the market for S&P 500 funds has been kind of soft. It's not quants vs. non-quants. People in general are not looking to add to their S&P 500 profile.”
At INTECH, the West Palm Beach, Fla.-based quant business of Janus Capital Group Inc., emerging markets and global equity strategies have been bright spots at a firm that has seen a steady stream of outflows in recent quarters.
John Brown, senior vice president, said his firm has six institutional investors outside the U.S. who are considering committing a total of $1.2 billion to global and emerging markets quant equity strategies. He would not name the investors.