In their quest to find excess return, institutional investors are increasingly turning to an investment technique that involves taking short positions in equity without straying too far from traditional long-only mandates, say the banks and fund managers that provide access to the strategy.
Variously known as 130/30, active extension or short extension, the strategy relies on relaxing long-only constraints to allow managers to take a specified proportion of short positions, thereby giving them the potential to create return from negative as well as positive views. The 130/30 refers to the fact that the strategy is often put in place with constraints set at 30% short and 130% long, although it could just as easily be 120/20, 140/40, or some other proportion.
“Part of the motivation for this was survival for a lot of long-only money managers as the hedge funds have moved...
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