This article appears courtesy of Global Investor.
The trigger for interest, according to Michael O'Brien, head of BGI's European institutional business, is the growing understanding among investors of how better to exploit manager skill in the search for alpha. That insight has already benefited the hedge fund community, but acceptance is now spreading among institutional investors.
"People are realising that you have to make the return portfolio work harder and embrace techniques that you may not have employed in the past," says O'Brien. "BGI is a quantitative asset manager and our home territory is to separate alpha (manager skill) and beta (market index return), so the partial shorting structure is both familiar and preferred for us to develop."
The range runs from 110/110 to 185/85 and is specific to the market in question, but there is convergence around 130/30. The first partial shorting mandate in the UK was awarded only last year but the structure is coming up more and more often in institutional searches. Dutch pension funds are already actively engaged in a sector estimated to be worth some $50 billion already.
The partial shorting or 120/20 structure incorporates the use of two techniques, shorting and leverage.