By Niki Natarajan
In George Bernard Shaw’s 1912 play Pygmalion,
professor of phonetics Henry Higgins makes a bet with Colonel
Pickering that he can transform Eliza Doolittle, a Cockney
flower girl, into a duchess simply by teaching her impeccable
In the film version of the play, My Fair Lady, Eliza bleats
’enry ’iggins, giving away her
working class origins and with this unfortunate drop of the
'h’ shows the power of the letter. If adding an
'h’ allows Elisa to become a duchess, does
removing the 'h’ allow hedge funds to become more
palatable to the defined contribution-subscribing working
Creeping into the asset rankings from the retail left field
are Standard Life’s Global Absolute Return Fund,
along with various long-only, trustee-approved names such
Barings, all offering diversified growth funds.
These multi-asset class funds are typified by not being
benchmark driven, which is ironic as hedge funds returns are
being polluted by the desperate drive to benchmark them just
for the institutional investor.
Like a farcical (black) comedy, hedge funds are being forced
off the stage (exit left) as their long-only cousins (enter
stage right) dust off their presentation skills to return to
the deluded trustees with products that look and smell very
much like global macro – to some the
devil’s own strategy.
To many novice investors, however, global macro is still one
of the most feared hedged fund strategies following George
Soros’ stunt with sterling. So what is global
macro really? It is a manager’s ability to takes
advantage of any opportunity in any asset class as soon as it
arises with any tool.
It all sounds spookily similar to the definition of global
tactical asset allocation, an overlay strategy that many
pension funds have in their portfolio. Similarly with the
benign sounding cousin, the diversified growth fund. Both of
these strategies are currently gaining favour in public fund
beauty parades even in places where the hedge funds have been
For a while the multi-strategy fund was favoured over global
macro for its perceived nimbleness across strategies,
especially by the funds of hedge funds, but as they became the
car park for assets of the FoHFs, returns faded and consultants
were quick to suggest risk parity, GTAA or diversified growth
(including Standard Life’s GARS) as options that
could give investors an investment edge without investing in
the 'h’ word.
The real edge that these illuminati have over hedge funds is
that nowhere in the marketing material does the word hedge fund
or any of the associated jargon actually appear. In fact,
though these funds may short or take hedge fund-like positions,
they are marketed entirely with the language traditionally used
when discussing a supposedly safe long-only product.
Bridgewater, the largest 'hedge fund’ in the
world, and BlackRock are big in the global tactical asset
allocation game – with the former running GTAA money
for the National Pension Fund in Dublin and the latter doing
the same at the Clwyd Pension Fund, Hackney County Council and
the Arizona Public Safety Personnel Retirement System. AQR is
another big hedge fund group in the same space, also offering
GTAA for the Arkansas Public Safety Personnel Retirement
Managing money is managing money, but the art is in wrapping
it up the way the client wants it and charging accordingly. It
is the label that defines how much you can charge for it.
If risk-parity sounds a little risqué, what about a
nice little all-weather fund? Bridgewater might be an $80
billion hedge fund manager but if it has a long-only risk
parity strategy for 37 basis points that it sells without all
the hedge fund jargon, why wouldn’t an investor
look at it?
As EF Schumacher once said "Any intelligent fool can make
things bigger, more complex, and more violent. It takes a touch
of genius – and a lot of courage – to move in
the opposite direction."
As convergence between retail and institutional buyers of
hedge funds kicks in, and as hedge funds meld in with other
alternatives, maybe it is time to subscribe to InvestEdge?