Bridgewater Associates will soon be launching its latest strategy, focused on ready-made combinations of alpha that start with equity and later add other market betas.
Bridgewater's most recent investment innovation uses the firm's long-running Pure Alpha hedge fund strategy as an overlay on passively managed investments within a single commingled fund.
The firm's clients frequently overlay Pure Alpha on beta-driven stock and bond strategies to reduce risk and add diversification through uncorrelated returns. However, the single-fund format simplifies and streamlines the operational process for investors, said Robert Prince, co-chief investment officer.
Institutional investors are in active pursuit of “good alpha generators and inexpensive beta,” Mr. Prince said.
In Bridgewater's new commingled funds, beta is better than cheap — it's free — so “the investor is just buying alpha,” Mr. Prince said.
The beta element of the Bridgewater Equity Fund is an S&P 500 index strategy. The equity fund will be up and running within a couple of months.
The Bridgewater Bond Fund still is in development and will be launched later. The firm's research team also is contemplating the addition of a real assets fund as well some of the other 20-plus indexes the firm already combines with Pure Alpha in overlay accounts.
As more commingled funds combining different market betas with the Pure Alpha overlay are launched, investors will be able to invest in multiple funds for customized alpha-beta exposure.
The new funds will only be available to existing clients who can move money to them from other Bridgewater strategies. The firm's executives are introducing the new strategy to investors now.
If history is anything to go by, the firm's latest investment invention is likely to attract significant investment. Bridgewater manages a total of $160 billion, some of which could potentially be transferred to the new alpha-plus-beta funds.
In 2015, for example, Bridgewater introduced its first alpha-meets-beta strategy, the Optimal Portfolio, which integrated Pure Alpha with its All-Weather risk-parity beta approach.
Once again, the new strategy was offered only to existing clients; AUM invested in the strategy hit the $10 billion mark within nine months of its launch.
Like Pure Alpha, an advantage of the new alpha-plus-beta strategies is added investment capacity.
Bridgewater's Pure Alpha strategy has been closed to new investment for some years but was temporarily opened for more investment in the middle of 2016 and “found quite a lot of interest,” Mr. Prince said, noting that they had more demand than available capacity.