State Street Global Advisors, the world’s largest institutional fund manager, has reached the USD10bn mark for assets under management in its Edge strategies, SSgA’s version of short-exten
State Street Global Advisors, the world’s largest institutional fund manager, has reached the USD10bn mark for assets under management in its Edge strategies, SSgA’s version of short-extension or 130/30 approaches.
SSgA’s Edge strategies are designed to provide investors with a bridge between moderate risk/moderate value-added long-only strategies and higher-risk hedge funds. The asset manager launched its first such product, Australian Alpha Edge, in December 2004, and this year has added UK Alpha Edge and Global Alpha Edge to its range of 130/30 strategies.
‘The success of our Edge strategies illustrates our quantitative heritage, the strength of our equity research and our experience with short selling in order to build disciplined portfolios with a full range of potential performance outcomes,’ says Kanesh Lakhani, a senior managing director for SSgA in the UK.
Edge strategies introduce a limited amount of short selling into portfolios in order to take advantage of a negative viewpoint in the stock-ranking process while providing capital for additional long positions of the same magnitude to maintain 100 percent exposure to a benchmark. ‘The result is a significant increase in expected returns with a small or potentially no increase in active risk,’ Lakhani says.
As an experienced quantitative manager, SSgA has developed skills in identifying both potential winners and losers over more than 20 years of ranking stocks from best to worst. The asset manager also has around 16 years of experience in managing long-short equity portfolios, providing insights into the short selling process from cost containment to risk mitigation.
‘We anticipate continued development of Edge strategies to complement our existing long-only active approaches in most markets and across the risk spectrum in order to accommodate the needs and preferences of our clients,’ Lakhani says. SSgA’s most recent launches, include Global Alpha Select Edge and World Index Plus Edge, bring the firm’s total Edge strategies to 14, with further launches expected this year.
According to SSgA, institutional investors such as pension funds are showing interest in 130/30-type strategies because they increase the range of active opportunities and allow investors to benefit from the use of hedge fund techniques while still remaining closely tied to the benchmark characteristics. They also allow investors to invest in the strategies within their traditional equity allocations rather than in the alternatives category.
Research suggests that for many portfolios, the 130/30 ratio of long versus short positions is optimal because the marginal improvement in expected returns begins to diminish as greater levels of shorting are introduced. However, the ideal level of shorting will depend on investor objectives, benchmark composition, and active risk level among other factors.
SSgA, the investment management arm of State Street Corporation, offers investment strategies and solutions to clients worldwide across every asset class, investment approach and style. The firm, which has investment centres in Boston, Hong Kong, London, Milan, Montreal, Munich, Paris, Singapore, Sydney, Tokyo and Zurich and offices in 25 other cities worldwide, had USD1.8trn trillion in assets under management at the end of March.