ATP reunites alpha and beta after 6 years

Alpha and beta rely to a large extent on exposures to systematic risk factors, so goes the “2013 thinking” of ATP in reversing the decision to separate alpha and beta in its investment portfolio six years ago.

ATP has separate hedging and investment portfolios, with the hedging portfolio significantly larger at around DKK 670 billion ($122 billion) versus DKK10 billion ($1.82 billion), and the investment portfolio has been separated into alpha and beta. The separation was so distinct that the beta team was run from the head office, but ATP alpha was on another site, and was based on a small number of independent risk-taking teams.

The beta portfolio is split into five main risk classes or factors and the alpha portfolio will now be taken into this framework within beta.

“In the main, we conclude that alpha and beta are a question of exposure to systematic risk factors. We therefore see alpha and beta together in the same portfolio. It’s a development of our thinking,” chief investment officer Henrik Jepsen says. “It’s more like smart-beta risk factors. We are internalising these deliberations and want a more coordinated framework.”

ATP alpha will now be restructured and, while it is still to be determined which strategies will be pursued and which risk factors the fund wants exposure to, it will lose half of its 35 staff.

Jepsen acknowledges that having a small number of independent risk-taking teams was both a strength and a challenge.

Sponsored Content

One of the challenges was that with a large number of small teams it is difficult to scale the size of the total risk in the alpha exposure. In this way it was difficult to scale the investment efforts, and there was also a risk of over-diversification.

“In addition, the difficulty of scaling the efforts meant it was an expensive operation to run. We think it is important to have a focus on cost because we are in a low expected-return environment,” he says. “And thirdly, and most importantly in the long term, we think we can achieve better portfolio coordination.”

“The alpha group has been a success, after all costs and taxes, but while alpha has been $310 million, the fund is $120 billion, so we want to scale even more. It’s a challenge.”

This presents a conundrum for many large pension funds that use scale for cost reduction and negotiation. This may mean that these funds can not manage such strategies internally and achieve those aims, in light of the fact that the success of some of these strategies depends on being small and nimble.

ATP will continue to use the multi-strategy investment platform it has developed in the alpha business, where it managed long-short equity, equity market neutral, global macro, foreign exchange and currency.

 

Asset Owner:ATP

Leave a Comment

Sort content by

Fund managers want to be fiduciaries too

With less institutional flows forecast in the next few years, asset managers will need to implement a convincing “fiduciary overlay” to win business from large investors. mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Study accounts for TIPS, alternatives

The effects of adding TIPS and alternatives to the existing asset mix are being explored in an asset liability analysis conducted for the $53 billion Oregon Public Employees Retirement System by Strategic Investment Solutions. A presentation from SIS, which looked at five new asset allocation scenarios adding a 5 per cent alternatives allocation, and between

Time to come clean, says Ambachtsheer

The International Centre for Pension Management’s Keith Ambachtsheer believes if pension fund stakeholders “fessed up” about the real state of their funding situation, the business of pension fund management, and its subsequent investments, will have a brighter future. He spoke to Amanda White. There are not many pension funds around the world that can satisfy

Calls for global governance code go unheard

The global application of a code of best practice for institutional investors, developed by the UK Financial Reporting Council, was debated at the International Corporate Governance Network’s annual conference in Toronto. Amanda White reports. mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

How emerging markets benchmarks misread economies

As pension funds around the world shift international equity allocations to emerging markets, they should be increasingly cautious about the benchmarks in use, according to Conrad Saldanha, the New York-based portfolio manager for emerging markets equities at Neuberger Berman. mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Global equities lose ground to alternatives

Allocations to alternatives worldwide are expected to increase by more than 5 per cent at the expense of global equities in the next two years, according to Russell Investments 2010 global survey on alternative investing. mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Previous