Chalk another one up for the Transatlantic Trio

In the late 1990’s a couple of academics David Hsieh (Duke University) and Bill Fung (London Business School) wondered if traditional statistical analysis was appropriate for a new type of investment fund – the hedge fund. Although they had collaborated since early that decade, their 1997 paper “Empirical Characteristics of Dynamic Trading Strategies: The Case of Hedge Funds” put the two on a collision course with history.  Several years later they teamed up with the equally prolific Narayan Naik, who worked with Fung at LBS and met Hsieh at Duke while doing his PhD.  Last week the trio landed another in a long string of commercial successes advising some of the world’s most powerful financial institutions.

On Friday, State Street Global Advisors announced they had landed a US$200 million “hedge fund replication” mandate from the Universities Superannuation Scheme, a British pension plan serving the country’s academic community.  This is newsworthy since its one of the first major pensions to pursue such a strategy (although there has been lots of talk).

A State Street official sounded a refrain that will be familiar to regular readers of

“The hedge fund beta strategy allows clients to make a passive allocation to access beta, and to only pay hedge fund-like fees where they can identify genuine hedge fund alpha producers.”

But this is also newsworthy because SSgA was advised by none other than Bill Fung, David Hsieh and Narayan Naik.

This comes only a week after Fung, Hsieh and Naik were in the news due to an alliance they struck with Credit SuisseAccording to CS, the trio will be developing “alternative beta models designed to replicate the risk and return characteristics of hedge fund strategies and identification of alternative risk premiums.” The head of the firm’s alternative strategies group described the relationship as another step in Credit Suisse’s quest to provide “thought leadership”.  (You may remember that last fall, Credit Suisse also struck a deal with another big academic name in the hedge fund business – Andrew Lo of MIT.)

But it doesn’t stop there.  Fung, Hsieh and Naik are also advisers to Blue White Alternative Investments, a London-based start-up that has been making waves in the hedge fund replication field.

And for a couple of years now, Fung, Hsieh and Naik have also been advising JP Morgan on the creation of its Alternative Beta Index (“ABI”).  Today, they sit on its index committee.

Which leads one to wonder if tapping the collective crania of Fung, Hsieh and Naik is no longer competitive differentiator, and is instead becoming a requirement to compete in this business.

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