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 speech.
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 classes?
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 officially vetoed.
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 System.
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?