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Enhanced returns: Hedge fund overlays catch on

With some institutional investors still indecisive about allocating investments to hedge funds, and some still struggling to get to grips with portable alpha, it’s a relief to know that others are so ahead of the curve that they are putting the two elements together.

Northwater combines hedge funds with portable alpha.

Paul Robson, Northwater Capital “Allowing investors to choose their own overlay portfolio assuages concerns about hidden costs of portable alpha”
Paul Robson, Northwater Capital

Northwater Capital Management has developed a platform that enables institutional clients to enhance returns on an indexed portion of their portfolios by linking the underlying investment to returns on selected hedge funds or funds of hedge funds. Paul Robson, president of Northwater Capital, says that the strategy is gaining popularity among university endowments and pension funds. Over the past 18 months, Northwater has won 10 new portable alpha accounts and is being considered for a further nine mandates worth more than $1 billion.

“We won our first mandate in 1989 from a highly sophisticated endowment that had already been exposed to hedge funds and portable alpha overlays for some time,” says Robson. “These days, our clients are very broad. They have assets ranging from $300 million to $10 billion plus and are corporate plans, public pension plans, and endowments. It’s a reflection of the appetite for the product.”

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