State Street Global Advisors, the investment management arm of State Street Corporation is now offering its hedge fund beta replication strategy th
State Street Global Advisors, the investment management arm of State Street Corporation is now offering its hedge fund beta replication strategy through a Luxembourg-domiciled Ucits III umbrella fund, State Street Global Advisors Luxembourg Sicav.
The strategy, dubbed Premia, seeks to generate long-term capital appreciation while mitigating the manager-specific risk and high fees often associated with direct hedge fund investment. It uses indexing techniques to approximate the overall exposure of hedge funds to systematic market risks.
The strategy was developed in collaboration with academics William Fung and Narayan Naik of the London Business School and David Hsieh of Duke University, who have worked together for more than a decade to generate research and analysis in the field of hedge fund replication.
The underlying premise of the Premia strategy is that the hedge fund industry, as a whole, has derived much of its performance from exposure to well known market beta risks such as the equity risk premium, term structure risk premium, credit risk premium, and small stock risk premium.
According to the academics, a substantial amount of hedge fund performance is due to the excess return paid for taking these beta risks. The Premia strategy attempts to replicate the performance of hedge funds generally derived from exposures to these risks.
“The Premia strategy is an appealing alternative for investors interested in gaining low-cost exposure to the risk premia that research suggests drive the majority of hedge fund returns, while providing the liquidity and transparency that many clients require,” says Kanesh Lakhani, a senior managing director with State Street Global Advisors in the UK. “More investors will now have access to this innovative approach in hedge fund beta replication.”
Versions of the strategy have been in place for more than a year in a variety of segregated mandates. Through the establishment of a single umbrella structure in Luxembourg, State Street Global Advisors aims to create greater efficiencies within its European distribution channels, and the firm plans to launch additional strategies through the structure in the coming months.
“The launch of SSgA Luxembourg will significantly increase our product offering while enhancing our distribution opportunities across the different investor constituencies in Europe,” says Greg Ehret, head of Europe, Middle East and Africa for State Street Global Advisors.
“Luxembourg has become one of the preferred domiciles for pooled fund investments for a wide range of investor types, including our traditional institutional investor market and the increasingly important asset gatherer market.”
State Street Global Advisors, which has USD1.7trn in assets under management at the end of September, operated through investment centres in Boston, Hong Kong, London, Montreal, Munich, Paris, Singapore, Sydney, Tokyo, Toronto and Zurich.
