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

Governance foiled by human folly at NY state fund

The third largest fund in the US, the $122 billion New York state pension fund, has recently been embroiled in a tale of greed, fraud, bribery and corruption, with a number of its alternative investment funds allegedly tainted by the wrong-doing of former employees of the state comptroller’s officer, including its former CIO. In this

Maybe it’s time to get back into the water, with a life jacket

Institutional investors have never been market timers, but in this editorial, publisher of conexust1f.flywheelstaging.com, Greg Bright, argues maybe now is the time for pension plans to take a bet. mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Volatility sparks complete risk management review at CalPERS

Turmoil in financial markets and the need for greater transparency has triggered a review of the $174 billion CalPERS’ existing governance and risk management framework, with a new ad hoc committee tasked with reviewing the risk management framework across the entire business. mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

AustralianSuper aims for beta returns after big cuts to active equities

The A$28billion (US$20 billion) AustralianSuper terminated several mandates with active equities managers last week and directed most of the freed-up capital to passive exposures bringing its passive management in equities to more than 50 per cent, in an effort to simplify its portfolio by trimming excess managers. mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Embrace risk in asset allocation

Investors should be wary of “new paradigm” arguments, according to the latest research by consulting firm Wurts & Associates, which reminds investors the forces driving capital markets rarely change, but the position within market cycles is ever changing. Wurts & Associates’ philosophy on strategic asset allocation is that static portfolio structure is an ineffective means

Index composition changes create opportunities for bond managers

Drastic changes to the composition of the US bond index, the Barclay’s Capital Aggregate Index, will create opportunities for active bond managers and provide rationale for institutional investors concerned about active management in the sector to adhere to their long-term asset allocation. mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Previous