130/30 Primary: Merrill 130/30 poll corroborates earlier polling, but also finds some new surprises

130/30 14 Jan 2008

Merrill Lynch releases it’s latest 130/30 survey results this week and reiterates that $1 trillion will be invested in 1X0/X0 strategies by 2011.  While this estimate is in line with earlier prognostications from Merrill, the report’s author says a few of the findings surprised even him.  Number one among those findings is the fact that public pensions seem more enamored with the idea of short-extension strategies than private pension plans.  According to HedgeWorld:

“Public funds now represent 21% of the institutional investors in 130/30 strategies, followed by endowments (19%), corporate pension plan sponsors (13%) and private foundations (11%).

“The fact that corporate pensions accounted for a smaller slice of the 130/30 pie compared to public plans was a bit odd. ‘This was my number one surprise,’ said [Gordon] Latter [the report’s author]. It is easier to explain why foundations and endowments occupy a smaller space as they tend to be heavily invested in alternative investments, he said.”

The survey also finds that investors are biased toward long-only managers when it comes to 130/30.  This will surely add fuel to the already rancorous debate over who is better equipped to provide these funds.

Interestingly, respondents also preferred flat fees to performance fees.  Nearly half said they preferred a flat-fee-only while the other half (and a majority of European investors) had a preference for either an outright performance fee or a combination of performance fee and flat fee.

The study largely corroborates the findings of a survey done in August by AllAboutAlpha and Terrapinn, the global conference organizer.  Both studies found that the most prominent concern with hiring a 130/30 manager was the “manager’s ability to short”.  Both studies also identified a limited track record and high fees as additional concerns.  However, our survey found that investors weren’t as concerned with the additional risk of 130/30 strategies (the #2 concern according to the Merrill report) and were far more concerned with the limited track record of most 130/30 managers.

Both studies also showed about 16% of investors were already using 130/30 strategies and a further one-third are considering the adoption of these strategies.  And both studies also showed that around half of investors prefer quantitative managers and 30% prefer fundamental ones.

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  1. Cassandra
    January 16, 2008 at 9:01 am

    Does anyone find it the least bit ironic that while leverage is being systematically purged from the credit and asset markets, equity allocators are feeling compelled not only to increase it, but to institutionalize? I wonder whether after this bout of deleveraging in the credit markets, whether such trillion dollar prognostications will prove in hindsight to be somewhat Malthusian.

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