130/30

The line separating hedgies from their vanilla counterparts will likely continue to blur. The creation of hedge-fund like mutual funds is probably in the second inning, but there are a tidal wave of products coming as the biggest asset grab in history heats up. Buyer beware, not all teams can hit the ball…

Indeed, some people are “fine-tuning” their strategy offerings...without much success.

Ray Dalio of Bridgewater Associates knows a thing or two about portable alpha...and success for that matter. Everyone is looking for the next Buffet. We are looking for the next Ray…

Dalio sees the line between hedge funds and traditiional money managers disappearing. A market environment of diminishing liquidity will place greater emphasis on pure alpha investing. The strategies Dalio calls trained monkey ones, which rely on certain market conditions to work, are relics of the past.

But if you work at a vanilla only shop you might want to dust off the resume...after you take a bite of this tidbit:
Alpha managers are competing for the whole enchilada. It means if you are a traditional equity manager you can’t compete with an alpha overlay manager to produce comparable results because you don’t have the diversification of alpha to produce the same information ratio.

Are you an alpha manager of a beta-manager?

The most fundamental break will be between alpha managers and beta managers. There will be no such thing as equity, bond or hedge fund managers in the traditional sense. Financial News 11/06

But 130/30 funds are a pale imitation of the strategies Ray can deliver...he has a huge lead and might be the only guy who can beat James Simons to the $100 billion mark.

Mother Merrill recently published a 130/30 report that can fill you in on the trend.  It echoes Ray’s thoughts…

“The proliferation of 130/30 portfolios are a natural outgrowth of the continuing demand for alpha beta separation, in our view. They show the narrowing gap between traditional long-only managers and hedge funds, as some traditional long-only managers lean toward demand, and try to adapt tools such as shorting to offer more flexible strategies.” Merrill report on 130/30 Portfolios

Compliance officers are crawling over every open orifice on Wall Street...are the 130/30 managers going to short stocks that their long-only associates are trafficking in on the long side? It sounds a bit messy.

Buy-siders can barely grab a drink after work with sell-sider coverage without running it by compliance officers...lets see if the vanilla boys can pull this off.
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The content contained in this blog represents the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author. 1440 Wall Street has no position in funds mentioned above.

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