How Allocators are Weatherproofing Their Portfolios

In hindsight, Peter Madsen wishes his team had advised clients to include managed futures in their portfolios. These funds, which generally employ trend-following strategies to trade derivatives tied to a wide range of markets including commodities and currencies, performed extraordinarily well during the global financial crisis of 2008. That year, managed-futures funds returned 14 percent, while the Standard & Poor’s 500 index fell about 37 percent and the average hedge fund lost nearly 20 percent. For investors who always carry an umbrella because they don’t know exactly when it will rain, managed-futures funds proved to be a savvy bet.

马德森当时是一名投资顾问，现在是犹他州学校和机构信托基金办公室（SITFO）的首席投资官，他说，他现在正在对SITFO 20亿美元的投资组合实施下行保护策略，其中包括管理期货——有时被称为商品交易顾问（commodity trading advisers，简称CTA）。他说：“我从这次危机中学到了很多，从那以后，我对CTA和类似的策略更加适应了。”。SITFO是两年前从无到有建立起来的，专门管理一个现有的投资组合，该投资组合用于该州的教育，此前由另一个政府机构监管。

SITFO is among a growing number of institutional investors, including the State of Hawaii Employees’ Retirement System, that are getting defensive in the face of a long-running bull market in stocks, bonds, and other assets. With yields at historic lows and interest rates on the rise, pensions and other institutions are looking to dial up their use of other diversification strategies, often by creating a subportfolio of CTAs, alternative risk premia strategies (mimicking hedge fund returns), and long-duration Treasuries to create a so-called offset when equity markets get rocky.

Man FRM, a division of U.K.–based fund management conglomerate Man Group, is providing SITFO with an actively managed portfolio comprising both internal and external investment managers through its managed-account program. Institutional investors have been increasingly interested in defensive strategies for about a year, says Michelle McCloskey, president of Man Americas and Man FRM. “Investors have had a long run of good performance in equity markets, but we feel markets are at a point of extended valuations,” she says. “Given elections around the world, and events like Brexit, investors are asking what they need to do to be prepared and how they get to an appropriate level of diversification.”

Hawaii’s retirement system worked with the Pension Consulting Alliance to implement what it calls a “crisis risk offset” program. Man FRM was hired to implement it and carry out risk oversight and rebalancing through its managed-account platform. Vijoy Chattergy, chief investment officer of the state’s retirement system, says Hawaii uses a mix of long-duration Treasuries to take the first blow in a crisis, when there is a flight to quality. If the crisis is sustained, the systematic trend-following strategies will kick in. The alternative risk premia strategy produces positive performance over the long run, although returns may not be positive in a crisis situation. “Sometimes people confuse this with hedging; this is an offset,” he says. “If our portfolio has a drawdown less than the market, then we’ll consider this successful.”

Utah’s Madsen says he established an allocation in SITFO’s portfolio specifically to play defense. “It’s anti-risk,” he says. SITFO is using a mix that contains, among others, alternative beta investments and trend-following CTAs, including strategies from Man AHL. Man can customize programs for investors that simplify reporting and operations and mix internal and external managers for pensions, endowments, and other institutions.

“Investors are doing a lot of work on managed futures, which performed quite well in ’08,” says McCloskey. “These strategies could move relatively quickly if markets start to go into an extended downturn and may act as a counterpoint to assets that are taking a hit.”

Other managers are getting creative as well. Milliman Financial Risk Management, an institutional risk management firm, will subadvise exchange-traded funds for insurance company and asset manager Transamerica Corp. Transamerica’s DeltaShares series has incorporated Milliman’s institutional risk management into rules-based passive funds. Theplanned ETFs该基金旨在稳定波动性，并在市场长期下跌和波动加剧时期管理股市下行风险，将包括美国大盘股、中盘股和小盘股基金、国际发达市场基金和新兴市场基金。一些人可能希望，通过拥有DeltaShares（首批提供危机保护策略的ETF），他们可以避开下一轮的降雨。