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

Experts mull strategies in slow growth climate

Speaking at the Fiduciary Investors Symposium at Oxford University’s Rhodes House Fiona Trafford-Walker, director of consulting at Frontier Advisors argues that Australian investors are operating in a changed environment and need to “get used to slower economic growth.” Speaking as part of an expert panel on how the continued environment of slow growth and low

Macro diversification: How do investors diversify risk?

“Geopolitics does matter and how to navigate geopolitical events on a portfolio is challenging,” argues Tom Clarke, partner and portfolio manager at William Blair speaking at the Fiduciary Investors Symposium at Rhodes House, Oxford University. In a session dedicated to macro strategies for investors to best navigate today’s complex investment universe and diversify risk, Clarke argues that “hiding” from

Oxford Professor urges urgent European reform

The University of Oxford’s distinguished Professor of Economics David Vines predicted the ongoing crisis in Europe will turn into a “train wreck with implications for investors” unless governments undertake significant reforms. He urges for large write downs of the sovereign debt of southern European countries, a loosening of austerity in those countries and a significant

Indexing pressure improves active management

A new study of active and indexed-based mutual funds shows the impact of different countries’ regulatory and financial market environments. The study finds that the average alpha generated by active management is higher in countries with more explicit indexing and lower in countries with more closet indexing. The evidence suggests that explicit indexing improves competition in the mutual fund

Investors need to revamp portfolio construction

Investors should re-consider their investment processes in order to achieve the needed “step-change in efficient portfolio construction” in a low return environment, the chief executive of the A$109 billion ($83 billion) Future Fund, David Neal, says. “It is the investment process that turns the universe of opportunities into a portfolio, and right now that process

Investors need to rethink operating model

A neat little story of investment flows, asset allocation changes, and relationship and service demands is emerging from the third annual Top1000funds.com/Casey Quirk Global Fiduciary CIO Survey. If you’re a CIO of an asset owner what that means is more control but also more responsibilities and the demands of more internal resources. For managers it

Previous