The separation of hedge fund alpha and beta has become “very important ... we are at the beginning of a very powerful story,” said Lionel Erdely, CEO (USA) and co-chief investment officer in the New York office of Lyxor Asset Management Inc.
“The large institutional investors we talk to say the thought process has really matured,” Mr. Erdely said, noting that by better understanding the sources of alpha and beta return in a strategy like long/short equity or fixed income, investment officers are more willing and able to include the hedge fund approach in their traditional asset classes.
Lyxor ranked 16th in P&I's ranking with $9 billion of hedge funds-of-funds assets.
Hedge funds-of-funds manager GAM took the unusual step of creating hedge fund beta portfolios based on Barclays PLC's risk premium indexes, said Anthony Lawler, portfolio manager and head of customized portfolio solutions, GAM Alternative Investment Solutions, London.
The new GAM portfolios are forward-looking and actively manage left-tail risk to avoid sharp declines during severe market downturns of one or two standard deviations, Mr. Lawler said.
Interest in the 18-month-old portfolios has been strong in Europe and is picking up in the U.S., he said.
GAM's hedge funds-of-funds assets totaled $5 billion as of June 30, placing it 28th in P&I's ranking.
Grosvenor Capital Management LP, Chicago, struck a deal in August with Credit Suisse Group AG to acquire New York-based Customized Fund Investment Group, said Michael J. Sacks, CEO of Grosvenor.
After the deal closes later this year, Grosvenor's assets will total $41 billion: $18 billion from CFIG and $22.9 billion from Grosvenor, which ranked fourth in P&I's ranking.
Pumping up Grosvenor's assets was not the acquisition driver, Mr. Sacks said. “The combination of Grosvenor and CFIG creates a new capability to offer customized separate account approaches for institutional investors across a range of alternative investment strategies,” Mr. Sacks said.
Not all hedge funds-of-funds managers are busy innovating.
“Our strategies have remained very steady for some years now,” said Thomas P. Murphy, senior partner and U.S. head of fiduciary, based in the Boston office of Mercer Investments.
Mercer's less avant-garde approach seems to have appeal: hedge funds-of-funds assets grew 84.1% to $5.5 billion in the 12 months through June 30, earning the firm the 25th spot in P&I's 2013 ranking.