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The wheels come off
25 June 2008
Are 130/30 products truly a way to harness a vast untapped potential of expertise, or just another fad that like all fads, may have just a kernel of truth embedded deep within? What is clear is that many long only fund managers as well as hedge funds are jumping onto the 130/30 bandwagon, which for many institutional funds, may not necessarily be driving them to anywhere sensible. Joseph Mariathasan reports.
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130/30
In December 2006, CalPERS, the largest public pension fund in the US, gave its seal of approval to one of the then hottest current trends in fund management by appointing five global equity managers to generate investment returns by relaxing the "long-only" constraint in their portfolios. Without any accepted terminology for them, such strategies are popularly referred to as "130/30" strategies or sometimes "120/20" and describe an approach of shorting anywhere from 10% to 50% of the portfolio and reinvesting the same amount to generate a net 100% long only exposure to the market. Merrill Lynch in a report issued in March last year, proclaimed that a wave of asset managers would begin offering such portfolios as the gap between traditional managers and hedge funds continues to narrow.
The rationale
The more opportunities a fund manager has in any given mandate, to exercise his judgment, the more scope...
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