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Browse by CategoryHome » Category List » 130/30
130/30 Not yet shining in Land of the Rising Sun6 August 2008
With several mega-institutional investors and a $120b public pension fund that has recently upped its hedge fund allocation, you’d think the sun would shine on short-extension strategies. But this month, the magazine reports:
Asian Investor cites several reasons for the slow uptake. Firstly, it says that many Japanese institutional investors view 130/30 as a sort of proto-quant strategy. And like all quant strategies, it should be avoided. Second, investors can’t figure out if 130/30 funds are hedge funds or long-only funds. Third, Japanese investors are still trying to come to terms with risk control, and fourth, the fees are different than traditional long-only funds. I asked Ted Uemae, President of AIMA’s Japanese chapter what he thought of these developments (or lack thereof). He told me that the abysmal performance of the Nikkei last year was partly to blame. With a return of -11.1% in 2007, Tokyo was the worst performing major developed country market in the world last year. Says Uemae:
Unfortunately, he notes, 130/30 is likely seen by Japanese investors as an extension of traditional long-only active management - bringing with it Nikkei beta. So institutions may essentially be leapfrogging, in some cases, right to absolute return strategies to avoid market beta altogether. Compounding this, says Uemae, is the usual hurdle of needing experience with shorting.
Asian Investor concludes that 130/30 may actually rise in China before it does in Japan. But despite the expected theoretical benefits of applying a short-extension to Chinese long-only funds, this recent article says that certain challenges remain (very rough, but interesting English translation by Google here). Last year, I gave a presentation on 130/30 in China and found that 130/30 was not a huge priority at the time. But I felt that this was a result of local institutional investors being overwhelmed with opportunities and other priorities, not a detailed analysis of the pros and cons of 130/30. In other words, it was as if they simply hadn’t gotten to it yet. If 130/30 dawns on the multi-trillion dollar Chinese institutional investment industry, then the future for Asian suppliers will be so bright, they’ll have to wear sunglasses.
Comments »130/30 bull run still has some legs: S&P24 June 2008
Taking a page from Andrew Lo, co-author of the recent academic paper “130/30: The New Long-only“, S&P’s Srikant Dash told a London audience earlier this week that “Asset managers are moving into this area and eventually these funds will take a significant share from traditional active funds”. This year may not be a bust though. Referring to one particularly aggressive market estimate, another S&P official apparently said 2008 could also be shaping up to be a barn-burner:
According to Hedge Funds Review, S&P is launching two new 130/30 indices later this year. This, after an S&P-authored research paper recently argued that the best benchmark for 130/30 funds is probably a long-only index (see related posting, read report). Maybe that was a different “S&P” (?)
Comments »130/30 rationale, value, and “myths” covered in newly released slideware8 June 2008Earlier this month, Pensions & Investments held a tri-city 130/30 dog-and-pony show in San Francisco, Chicago and New York. And this week, they released several presentations given at the event. So if you happened to have missed the show when it came through town, you might be interested in seeing the slideware available here at P&I. Below we give you our take. John Power of Pyramis gave a succinct overview of the rationale, costs and benefits of 130/30 that also included what has probably become the most popular slide in any 130/30 presentation:
The key message, of course, is that you simply can’t bet against most names in the index in a significant manner. In our view, the difference between underweighting a 0.5% position by 0.5% and underweighting it by, say, 0.6% isn’t significant from an investment standpoint (some might argue the requisite introduction of short-selling brings with it some new operational issues).
Comments »Is an “integrated” 130/30 portfolio always better than a “combined” one?5 June 2008There seems to be a growing level of agreement that 130/30 is different than simply adding together a “100″ portfolio (e.g. an ETF) and a “30/30″ portfolio (e.g. a market neutral fund). Some practitioners have pointed to the “untrimness” of being long and short some of the same stocks (e.g. Jacobs & Levy - see related posting). But others such as First Quadrant’s Jia Ye have argued that adding a short-extension will not always be optimal even for the alpha-producing manager due to the potential volatility of the information coefficient (see posting). Today, guest contributor Srikanth Iyer, Senior VP and Senior Portfolio Manager, Global Systematic Strategies at Guardian Capital LP puts these two ideas together by exploring whether a so-called “integrated” 130/30 portfolio is always optimal. 130/30 “Combined” vs. “Integrated”: The Tail Wagging the Dog
The rapidly evolving landscape of 130/30 has seen many investment concepts used in interchangeable and often inappropriate ways. As more players enter this space, it’s likely that we will see a further dilution of these core concepts. The debate between a “combined” and “integrated” approach to active extension strategies is a classic example of how important concepts relating to return and risk are being bypassed to placate existing investment approaches. The demands of business development add further confusion to the discussion about 130/30 strategies. An “integrated” 130/30 portfolio is created using a mean-variance optimizer that uses the correlations between individual long and short securities to achieve an optimal mix for a given risk budget or ex ante tracking error. In contrast, a “combined” 130/30 portfolio combines an existing mean-variance optimized long only portfolio with an integrated 30 long/30 short portfolio - effectively, combining a long only beta adjusted return with a zero-beta market neutral return.
Comments »One more 130/30 survey to add to the pile…31 May 2008In a follow-up from a posting last week, Terrapinn’s Quant Invest 2008 folks in London just completed a survey of the institutional investment intentions of 120 pensions, endowments, insurance companies and family offices. Right in the middle at 63% is, you guessed it, 130/30…
Comments »Weekly Newsreel: Madrid, Stockholm, Maple Syrup and 130/3025 May 2008
Nervous alternatives managers could be leaving alpha on the table: P&I reports from ”AlphaMax” in Madrid that “Fees became a point of contention between pension fund executives and hedge fund managers…with the pension executives arguing that the typical hedge fund management fee of 2% and performance fee of 20% can be a deterrent…” 8 out of 10 managers fail to add value: Meanwhile in Stockholm, Watson Wyatt’s Roger Urwin tells another conference why pensions have an allergy to “2 and 20″.
Comments »New 130/30 and “hedge fund replication” mandates bridge gap between alts and skeptical pensions20 May 2008
One of Sweden’s public pension plans, the EUR9 billion AP7, announced the news at a conference yesterday. Reports IPE.com:
Grottheim told the gathering that he could get “the same returns” by investing directly in the risk factors that tended to drive hedge fund returns. (see previous posting on AP7’s alpha/beta separation programme) But is this really the primary motivation for the move? Since hedge fund of funds returns are reported net of fees, it appears as though AP7 won’t be any better off after the shift. Granted, they won’t have to deal with the discomfort of making any fund of hedge fund managers rich (while they simultaneously aim to fund the retirements of hard working Swedes). But how does this shift really make life easier for the pension plan?
Comments »A review of recent 130/30 surveys19 May 2008
So is 130/30 the New Coke of asset management? Will we eventually pine for the “classic” version of our favorite active managers? This survey, for one, suggests not - only 14% of pensions thought 130/30 was a “passing trend”. This is another in a growing body of surveys on 130/30 (of which our 2007 survey with Terrapinn is a part). So we thought this might be a good time for a re-cap. Below is a quick list of all the 130/30 industry surveys we can immediately recall (in chronological order). If we have missed any, please let us know. 2006
Comments »130/30 a “silly gimmick” or a ($3b) “important new mandate”?19 May 2008
There’s no question shorting requires “a different skill set”. But like any skill-set, these skills can be bought and sold by participants in the asset management industry - enabling long/short managers and even (gasp!) long-only managers to rapidly move onto a level playing field with seasoned short-sellers. Unless you consider some kind of inherent culture that makes for successful shorting, no asset manager can hope to erect barriers to entry in this burgeoning niche. In our view, it’s just not that fundamentally unique when compared to long-only or long-short. Long-only managers have been immigrating to the Republic of 130/30 for some time. Now the republic’s other border (the one it shares with Hedgistan) is also experiencing an increase in traffic. Italy’s Banca Fideuram handed over a whopping $3 billion mandate to hedge fund behemoth GLG recently. As HedgeWorld reports this week, the bank says:
That’s Italian for “It’s all about alpha”.
Comments »Report: “Exposure yardsticks may provide little insight about a fund’s alpha potential”15 May 2008
A research paper by Morgan Stanley (available in the Morgan Stanley research dossier at AllAboutAlpha.com) reminds us that dollar-weighted exposure is not synonymous with beta-weighted net exposure. But the paper, another in a series by Marty Leibowitz and Anthony Bova, also argues that the beta-weighted net exposure doesn’t really tell us a lot about the potential information ratio (alpha/tracking error) of the fund. To gauge the potential IR of a fund, one should instead look at the ratio of “active” long positions to “active” short positions - or what Leibowitz and Bova call the “active ratio”. The active ratio, they argue, is more descriptive of the risk/return dynamics of a fund than the more recognized dollar-weighted or beta-weighted net exposure. They say the Active Ratio can reveal how long/short funds and 130/30 funds are really just first cousins:
Comments »Alpha-centric investing described as a “seismic shift”9 May 2008
Now the landscape is changing. Or perhaps more accurately, investors are now expressing a desire to try their hand at portfolio construction using basic ingredients such as cash, beta, and alpha. This FT article (”Equity fund outflows bring need to adapt“) is a must read for anyone who thinks we’re nuts. The newspaper describes the changes facing the asset management industry as nothing less than a “seismic shift”. Kevin Parker, the head of Deutsche Bank’s $800 billion money management business tells the FT:
The FT also cites Jim McCaughan, CEO of Principal Financial Group as an advocate of alpha-centric thinking:
Comments »Report says hedge funds, portable alpha and 130/30 all leading to (financial) climate change5 May 2008
Although the 130/30 market has grown since then, it remains in the very low hundreds of billions globally. Yet in a report released a few days ago, the Security Traders Association (STA) blames recent market volatility, in part, on 130/30 funds. Says the report:
High velocity hedge funds seem to be primary focus of the STAs concern. But 130/30 isn’t the only institutional investment strategy at which the STA points a finger. The use of derivatives (for example, for portable alpha) is also identified as a growing source of market volatility by the report:
Comments »Survey of hedge fund professionals: 130/30 “minor discussion within larger context”4 May 2008Regular readers may remember our survey of attitudes toward 130/30 funds last August. Since that survey, several others (e.g. Merrill Lynch, Vodia Group) have come up with similar numbers - about 15-17% of institutions actively investing in 130/30 and another 25-30% considering investments in the next 12 months. Today, Kathryn Wilkens tells us of a recent survey of practitioners (members of the Chartered Alternative Investment Analyst Association) on this topic in our regular instalment of “Alternative Viewpoints”. A true advocate of alternative investments herself, Kathryn Wilkens received a Ph.D. in finance at the University of Massachusetts in 1998, and received a Center for International Securities and Derivatives Markets (CISDM) fellowship in 1997. She was on the CAIAA’s advisory board from the program’s inception in 2002 though 2005, and is now the CAIAA’s Director of Curriculum. Alternative Viewpoints - powered by CAIA
Last month, 440 CAIA members responded to a survey on 130/30 funds and I presented the results at Terrapinn’s 130/30 conference in Santa Monica. The survey questions were structured around two main themes frequently discussed here at AllAboutAlpha.com:
When I posed the first question to the attendees at the Terrapinn conference, all but one responded that a standard long-only equity index such as the S&P 500 index or the Russell 2000 is the appropriate benchmark for 130/30 funds. Yet Dow Jones, Credit Suisse, and S&P have all recently developed 130/30 indices (see related AAA postings Dow Jones joins the 130/30 Index Parade, S&P follows CS into 130/30 index business, 130/30 Indices: True indices or like playing chess against a computer?) Two of these indices are classified as a type of “Strategy Index” with another being a so-called fundamental index.
Comments »1X0/X0 and the hunt for African alpha1 May 2008
But is it really alpha? To address this question for us, we welcome the following guest contribution from Helena Conradie of major South African money manager Sanlam Investment Management. Helena is the Head of Sanlam Investment Management’s equity quant boutique that manages over R21 billion. She is a CFA charterholder and has an MSc in Applied Mathematics Cum Laude from Stellenbosch University.
In just more than 18 months people all over the world will flock to South Africa to attend the world cup soccer event, paying generously to see amazing flair and display of talent. But would they consider South Africa as the location for amazing alpha? At any given time there is a finite amount of alpha available for fund managers to hunt. And as we all know, it is “all about alpha!” The diversity of stock returns across all sectors (the cross-sectional volatility) is a good indication of the presence of alpha. So does the South African rainbow provide the alpha hunter with enough diversity?
Comments »After launching 130/30 index, S&P says best yardstick is actually a long-only index29 April 2008
We were skeptical - noting that 130/30 amounted to simply leveraging the alpha potential of a strategy and was not really a strategy on its own (see posting). But we didn’t confine our skepticism to S&P. We also raised questions about the approach taken by Credit Suisse (see posting). We reasoned that since both indices were based on proprietary models, their performance was entirely contingent on the performance of each company’s underlying investment decisions. While S&P stopped short of saying its index was “representative” of 130/30 funds, a published index like this is obviously meant to be used as some kind of benchmark for 130/30 managers. But now another S&P report says the best benchmark for 130/30 managers is actually an appropriate long-only index…
Comments »130/30 Manager: Don’t call us quants28 April 2008In a quick addendum to yesterday’s posting on the growth of fundamental 130/30 strategies, here is an example of one company that aims to distance itself from the pure 130/30 quants by adding an “intuitive” element to quantitative decision making. BNY Mellon Asset Management launched a 130/30 fund for European investors a couple of weeks ago that it says attempts to “harness alpha in a slightly different way than other quantitative managers by placing emphasis on fundamentals and economic intuition, rather than depending on more empirical methods.” While it’s not quite a slam against more quantitative fund, it does reflect the unease asset management marketing departments have with the association 130/30 has developed with one of last year’s sorriest alternative strategies.
Comments »The new face of 130/30?27 April 2008
While P&I describes this growth as “drastically slower” than last year, the numbers are still relatively small (53 managers), so it’s tough to draw any definite conclusions from these numbers. But we were were struck by what P&I said next: “…with most asset gains picked up by fundamental managers…” While fundamental strategies are gaining, quants still continue to dominate 130/30-land. As we’ve suggested before, it’s difficult to disentangle the poor performance of quant strategies in general from the performance of 130/30 as an investment approach. A rise or fall in 130/30 assets says more about managers’ view of the potential returns from beta, their own skill-level, their clients’ demands and their own particular business model than it does about the merits of short extensions per se. As a half-way point between long-only and market neutral funds, short extensions are simply an more aggresive form of active management, not an exotic new approach to investing.
Comments »Media turns hostile: 130/30 now “dubious” “overblown” “faddish” “hype”21 April 2008
His April 20th commentary is entitled “Long on shortcomings: Numbers don’t add up for faddish 130/30 funds” and his main argument is that “early returns don’t seem to justify the hype”. While that may indeed be the case, extrapolating from these early returns is premature at best and totally inappropriate at worst. Headline-writers as “dozens of US newspapers” are getting creative with Jaffe’s piece:
Stretching the data Unfortunately, readers in dozens of US cities are now getting the wrong idea about 130/30 funds. For example, Jaffe references research conducted by the UK-based Investment Week magazine:
Comments »130/30 in the 1930s13 April 2008
The latest to conduct this analysis are Carl Armfelt and Daniel Somos, graduate students at the Stockholm School of Economics. Armfelt & Somos selected a set of basic Fama/French factors to create their alpha model and ran it all the way back to 1927. Here’s what they found:
Comments »Research says shorting ETFs in a 1X0/X0 portfolio holds unique benefits7 April 2008
This was a concern raised last June in this MarketWatch article (see related posting, “So Much for Double Alpha”):
While it may be true that hedge funds are in the business of creating alpha, 130/30 funds may be a little different. Institutional investors, the early adopters of these hybrid strategies, seek alpha too. But they do so with a watchful eye to volatility (known to them as “tracking error” vs. a benchmark index). The key ratio for them is the “information ratio” (alpha/tracking error).
Comments »In parliamentary-style debate 130/30 compared to “Cabbage Patch Kid”, “Roger Clemens”, and an “old pickup truck”27 March 2008
On Thursday, the Canadian chapter of AIMA, the Alternative Investment Management Association held its annual parliamentary-style debate in Toronto. This year’s resolution before the house: “1X0/X0 hybrid hedge fund strategies are simply a marketing fad.” With more than a passing interest in 1X0/X0 strategies, we were sure to show up for the fireworks. “Speaker of the House”, AIMA Canada Vice Chair Tris Lett was tasked with maintaining decorum in the oak-paneled main dining room of Toronto’s tony National Club (think, the club from the movie Trading Places). Clearly familiar with the mayhem of parliamentary debate, he warned debaters only against physical attacks and the use of foreign objects (a la the Taiwanese parliament).
Comments »Portable alpha demoted to “low opportunity” in new survey of consultants25 March 2008Regular readers will remember that in 2007, portable alpha and 130/30 were deemed to be “up and coming” by management consultancy Casey Quirk & Associates (see related posting). The firm surveyed 49 North American investment consulting firms and found that portable alpha, liability-driven investing and 130/30 “may not represent a search focus, but see rising interest in conducting search activity.” Casey Quirk just released the results of its 2008 survey. And this new edition concludes that 130/30 and LDI remain “up and coming”, but portable alpha has been told to clear out its desk and move to “low opportunity” with commodities and fixed income. (”Low opportunity” is defined by the report as any asset class “faced with declining interest and little focus from the consultants in 2008.”) Here is how Casey Quirk saw the world back in March 2007…
Comments »130/30: Nature or Nurture?24 March 2008To uncover underlying genetic predisposition for certain kinds of physical or mental health issues, scientists often study identical twins that have lived apart for some time. The assumption is that any similarities between the twins must therefore be a result of genetics, not environment - of “nature”, not “nurture”. Gordon Johnson of Lee Munder Capital in Boston has been performing a similar of experiment on 130/30 funds for some time now. He has been comparing the results from long-only and 130/30 funds managed by the same investment manager. By comparing funds with the same underlying genetic code (the managers’ unique investment views), he aims to determine whether the use of a ”short-extension” per se leads to a fundamentally different outcome. Johnson’s previous research indicated that 130/30 funds have indeed outperformed their long-only twins (see related posting). He has recently updated his findings to include the second half of 2007 - a volatile period for both the market and for 130/30 funds. We were curious to see these results because Johnson’s previous findings were based on years when the market appreciated. It turns out that the addition of the rest of 2007’s data reinforces his earlier finding that 130/30 funds have out- performed long-only funds managed by the same managers. As you can see from Johnson’s new chart above, over the past 42 months 130/30 funds have significantly outperformed their traditional siblings (note: he finds only 8 sets of twins in the eVestment Alliance database.) So it appears that when it comes to 130/30 funds, “nurture” continues to count for a lot.
Comments »Start your alpha engines, “the race is on”23 March 2008
Hedge Funds “outperformed by a very handy margin” Of course, this convergence presupposes that these alternative asset classes actually represent something of value. And after racking up volatile results over the past 6 months, hedge funds, for one, are raising some eyebrows. Still, Merrill argues that recent performance does little to diminish the value of hedge funds:
This last point bears some reinforcement, we believe, because “bubbles” occur when investors bid up prices in a relatively short amount of time. As this report points out, the percentage of assets managed by hedge funds has grown rather slowly, they continue to represent less than 1.5% of global “mainstream” assets and their net asset values are based on underlying securities, not a subjective premium like, for example, tech stocks (see related posting).
Comments »Dow Jones joins 130/30 index parade16 March 2008
Like CS (see related posting) and S&P (see related posting), Dow Jones simply executes a pre-existing security-selection methodology in a 130/30 format. The security-ranking methodology is called “RBPP” (”required business performance probability”) and it measures companies according to the likelihood that management will meet the business expectations implied by recent stock prices. In fact, the index is simply a combination of three existing indices. Says the index methodology overview:
Comments »Alpha-centric Newsreel14 March 2008
Morgan Stanley says Alpha/Beta Separation “the way of the future”. The AllAboutAlpha site partner lays out its alpha-centric philosophy telling IPE that the pension industry is about to experience a “second wave” of LDI strategies based on the separation of alpha and beta. Dutch Insurer Aegon splits portfolio into alpha and beta segments are farms each one out to a different manager. According to the firm’s press release, “By managing the parts separately from one another, better risk-return ratios are possible. This way, more sources of value added will be available and a greater focus can be created in the portfolio. Separating the US share portfolio has created an increase of a yearly average of the total return of 2.5% without any risk increase.”
Comments »Manager: “We would look at short extension funds for the next big mutual fund scandal”13 March 2008We admit to drinking a lot of our own Kool-Aid here at AllAboutAlpha.com. So we actively seek out dissention and differing opinions as much as possible. We had planned to bring you one such story about a manager who says investors “should be wary of [130/30] funds offered by large financial services institutions with affiliated brokerage and ending operations”. But our friends (and AllAboutAlpha media partners) at Lipper HedgeWorld published a great piece on Kirchner’s thoughts late last week. The article is for HedgeWorld’s premium subscribers only, but we have been given permission to bring it to you in its entirety below…
“L/S Manager Says 130/30 Funds Create Negative Alpha”
Implementing 130/30 strategies creates negative alpha from the start, said Thomas Kirchner, a portfolio manager at Pennsylvania Avenue Event-Driven Fund, a Washington, D.C.-based mutual fund that practices short selling. On his blog, The Deal Sleuth, Mr. Kirchner posted a paper he wrote that stands in stark contrast to the recent hype around 130/30 products in the asset management industry. In the post “Negative Alpha Is Built Into 130/30 Funds,” Mr. Kirchner wrote that the problem with 130/30 funds is that they invest all the money they have. So in order to short, they have to borrow. And that comes at a cost. In theory, the manager of a 130/30 fund goes long using 30% leverage and then shorts the same amount, which gives the portfolio a total long/net exposure of 100%. But in an interview, Mr. Kirchner said that most of the advocates of 130/30 funds—prime brokers, asset managers and sell-side analysts—fail to provide the whole picture. The investor, he said, is told that in addition to placing 100% of his principal in an index, 30% of the invested amount will be sold short, and that the proceeds of the short sales will be used to acquire a 130% long position. The net exposure is still only 100% and generates pure beta, while the long/short component of the portfolio is supposed to generate some alpha. That’s the concept.
Comments »CIO of the North Dakota State Investment Board on why he chose 130/3027 February 2008We talk a lot about the theory behind 1X0/X0 strategies. But given the nascence of this sub-sector, it has been difficult to come up with any real-life examples about which to write. Today, however, we welcome guest contributor and 130/30 investor, Steve Cochrane, the Chief Investment Officer of the North Dakota State Investment Board (NDSIB). With over 26 years of institutional investment experience Steve is responsible for the administration of the agency as well as overseeing a $5.4 billion diversified investment portfolio. The NDSIB was selected as a nominee for Money Management Letter’s 2007 Savviest Public Plan of the Year and is a speaker at Terrapinn’s upcoming 130/30 conference in Santa Monica. 130/30: How it works for North Dakota State Retirement Scheme
After twenty years in the institutional investment management business, I came to a monumental realization that what I had learned in business school is true: large cap securities that are actively traded in major financial markets are most likely efficiently priced. It has now been eight years since that awakening. The efficient markets hypothesis (EMH) was originally developed in the late 1960’s. It states that market prices should reflect all information known about a security. After forty-five years of research and testing, most agree that this hypothesis is increasingly correct as capitalization and liquidity increase. When it comes to the Large Cap Domestic Equity asset class in the United States, theory converges with reality. I arrived in North Dakota to assume the CIO role in January of 1997. Awaiting me was a US$2 billion pension fund with an array of active managers who were benchmarked against the S&P500 index of large cap stocks, as well as S&P500 style benchmarks. While some were growth oriented and others pursued value and yield investing, they all had one thing in common: underperformance relative to benchmark.
Comments »130/30 has “opened up serious questions” for brokers and custodians: report13 February 2008A survey from consultancy Vodia Group backs up previous surveys from Merrill Lynch and AllAboutAlpha.com by finding that roughly 15% of institutional investors currently invest in 130/30 funds. As a result of expected growth, Vodia anticipates major changes in the prime brokerage and custodian businesses. According to the firm’s press release:
Apparently life won’t be all that bad for prime brokers though. According to a chart released by the firm, prime brokerage financing revenues will increase dramatically over the next 4 years - even as financing spreads come under pressure…
Comments »2007 data suggests 130/30 outperforms29 January 2008Our friends over at eVestment Alliance, a major database of institutional money managers, recently provided us with some interesting 130/30 data hot off the presses for a presentation Alpha Male delivered in Europe. Firstly, check this out. Back-testing has shown that 130/30 funds would have performed better than their long-only analogs over the past several years (see related posting). But do | ||||||||||||||||||||||||||||||||||||||||
In 
Hedge Funds Review reports that S&P is telling clients that 130/30 is “
Special to AllAboutAlpha.com by: Srikanth Iyer, SVP, 
It’s shaping up to be a banner week for alpha-centric investing in Europe. No sooner had the ink dried on one landmark alpha-centric mandate (see 
Apparently, 130/30 isn’t going away anytime soon. 
Doug Kass of 
Whether one is referring to a 1X0/X0 fund or to some other long/short variant like a market neutral fund, there is often an implicit assumption that the “net exposure” provides all the insight required into the return potential of the fund. For example, many commonly assume that 130/30 funds are “beta neutral” and therefore that the “30/30″ portion will generate pure alpha. But what if that short-extension was just offsetting? To use an extreme example, if it was 30% long the S&P and 30% short the S&P, then there would be no alpha.
We have always argued that actively-managed mutual funds are essentially a marketing package for two fundamentally different formations: a large deposit of beta and a vein of pure alpha. Unable to travel either the peaks and valleys of beta or the undulating topography of pure alpha, mutual fund companies long ago found a neutral territory that seems to have satisfied investors worldwide for over 50 years.
Last year, we published a couple of articles on the somewhat Malthusian possibility of a global shortage of stocks available for borrowing. (”
Special to AllAboutAlpha.com by: Kathryn Wilkens, Ph.D., CAIA, Director of Curriculum, the 
Last September, 
Special to AllAboutAlpha.com by: Helena Conradie, SIM Equity Quants
Back in November S&P launched its 
Pensions & Investments 
As the footnote to Chuck Jaffe’s recent 
Faced with a lack of track record for active extension funds, researchers are forced to re-create how these funds would have performed if they had existed for some time. The idea is to select an “alpha model” (an unfortunate term since alpha cannot technically be “modeled”) and run it back in time using real market data to see how it would have performed. The model is run once as a long-only portfolio and then again using any number of 1X0/X0 strategies. Comparing the performance of the models can yield some insight into whether the short extension itself adds value to a given alpha model.
Hedge fund managers often contend that long-only managers lack the skills required to short-sell. They will point to things like the fact that short positions will actually grow as they move against you (unlike long positions which shrink as they move against you). They will also point to the fact that shorts tend to be driven more by catalysts than longs. But one of the most legitimate concerns raised by hedge fund managers is the simple fact that good short ideas are often in short supply. 
Those unfamiliar with the inner workings of a parliamentary democracy always find the hoots and hollers accompanying parliamentary debate to be a source of great entertainment. Every week in countries around the world various prime ministers subject themselves to intense, direct and sometimes vicious attack. Some countries (such as Canada) have laws actually protecting legislators from libel suits for whatever barb they throw at their fellow parliamentarians while inside the house.
In a 
Dow Jones 
Here is a sample of the news stories we didn’t get a chance to explore in detail this week. As usual, all of them can be found on the Alpha-ticker above or in the news items section of AllAboutAlpha.com (free registration may be required for a few of these).
WASHINGTON (HedgeWorld.com)—Investors may get alpha with a 130/30 fund, but it won’t be free. In fact, the cost may end up being prohibitive, according to one long/short equity fund manager.
Special to AllAboutAlpha.com by: Steve Cochrane, Chief Investment Officer, North Dakota State Investment Board