The DNA of performance
Hedge fund correlation
While the issue of strategy purity may be a factor with trend followers, the question with the larger equity-based hedge fund world is correlation. When markets imploded in 2008 managed futures did its job of providing non-correlation to equities but hedge funds struggled along with equities (see Equities in drag,” below).
“What we believe, and our tool demonstrates, is the hedge fund world today is very much a high fee low performance version of equities,” Rulle says. “We want to create a more expansive view and more expansive capability for investors to really achieve alternative returns, which is what the hedge fund world initially promised. They are getting equity returns and they are paying 2 and 20.”
Marc Goodman adds, “I have always described a typical equity hedge fund as a long fund in drag. Equity hedge funds are another area that you are paying a lot for beta.”
Sambamurti says, “The notice is out there for every hedge fund manager that you need to differentiate yourselves from your peers in this universe.”
BarclayHedge founder and President Sol Waksman sees this as a great analytical tool but says we may be getting ahead of ourselves. “It gives customers another way to measure manager performance, [but] it might not be predictive at all. This does not say it will replicate [programs] going forward, it is just giving you some understanding,” he says. “Because they have so many indixes, intellectually it becomes a little more interesting. I am real curious and that is why I am [involved].”
BarclayHedge manager data is part of the MSR tool and it is the calculation agent for the indexes.
There have been many attempts to create low-cost beta investments for alternatives, but MSR’s platform takes an additional step by allowing managers and investors to dig deeper into the drivers of return.
While the goal is to gain allocations to the various investable indexes, the tool itself should help allocators and investors make smarter decisions about what to invest in. “The best benefit is to give people an understanding of what they are investing in,” Waksman says.
It also holds out hope to provide retail access to the world of alternatives. While 40 Act alternative products have grown, they haven’t exactly knocked it out of the park and they haven’t solved the fee issue.
For years alternatives have been firewalled from the retail space even though there is no legitimate reason that retail should not have access to the benefits of alternatives. This may be another step in opening up the world of alternatives and it is proof of the innovative nature of space.