Quant Investment Strategy To Grow To $67B by 2019; Pension Funds Drive Alternative Risk Premia


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Chicago, New York, London, Hong Kong, Tokyo & Sydney: An esoteric area of quantitative investing is poised for rapid growth. Alternative risk premia strategies have been adopted by innovative pension funds around the globe since the Global Financial Crisis.

Assets invested in the strategies are now poised to grow 35% by 2019 to $67 billion, according to new research from EQDerivatives.

Investors -- including pension funds, life insurance companies, family offices and private banks -- are turning to alternative risk premia due to the diversification benefits, lower fees versus hedge funds and positive performance.

"The 2008 Global Financial Crisis laid bare risks in investments that had seemed diversified. Alternative risk premia has emerged as a growth strategy because it's driven by diversification and quantitative strategies," said Patrick Fay, Head of Research & Consulting at EQDerivatives.

"Alt risk premia is also being fueled by pressure on asset management fees. Pension funds don't want to pay hedge funds the large fees they historically demanded." Fay notes.

In a research paper -- The Future of Alternative Risk Premia -- EQDerivatives gathered the views of investors and fund managers from North America, Europe and Asia Pacific either active or preparing to allocate to alternative risk premia funds or systematic strategies.

The growth in the asset class is being driven by institutional investors coming to realize that many alternative risk premia strategies improve risk-adjusted returns due to their attractive diversification properties. The research found that diversification was the main driver for turning to alternative risk premia among institutional investors, followed by a desire to produce uncorrelated returns.

Over the last 12 months, AQR, Goldman Sachs Asset Management, Man Group, J.P. Morgan Asset Management, GAM and BlackRock, among others, have seen growth in allocations to their alternative risk premia offerings from global investors. Alternative risk premia systematic strategies offered by banks are also finding traction from investors active in the market, as well as from new entrants on the cusp of allocating to the asset class.

Other key findings of the report, include:

The research provides a clear definition of alternative risk premia vs. smart beta. Those investors and managers make clear that smart beta are passive long-only strategies whereas ARP is systematic and quantitative, supported by deep academic or practitioner research. ARP solutions are dynamic, multi-asset, long/short strategies that are not necessarily market neutral.

For those investors not yet active in alternative risk premia but looking to allocate to the space over the next 12 months, the average initial investment expected is $124 million or 8.4% of their portfolio.

The research finds that overcrowding in equities will likely not arrive in the next eighteen months. We also forecast increased demand over the next eighteen months for value, momentum and carry in FX and commodities, as well as market imbalance in commodities.

Goldman Sachs was ranked as the leading bank across alternative risk premia solutions and research, in particular for the breadth of its offering across premia and asset classes and its strength in delivering customized solutions. AQR clearly leads among fund managers, in particular driven by its contribution to education and academia that underpins alternative risk premia.

To foster further growth, alternative risk premia market participants across the board are demanding that benchmarks be created across different premia. There is a strong need for independent yardsticks by which to judge alternative risk premia solutions.

To arrange an interview with the author of the report, Patrick Fay, please contact:

Bailey Bryan
Marketing and Communications
Email: bailey.bryan@eqderivatives.com
Cell: +44 (0) 7539 132643

About Patrick Fay

Pat is head of research & consulting at EQDerivatives. Pat runs EQDerivatives market mapping research, which engages with the top asset owners and managers globally to make sense of the alternative risk premia and volatility investing universe. That process allows these clients to shape the products and the way they're offered those products by services providers. Pat also heads up EQDerivatives' consulting practice which provides services to index providers, exchanges and banks globally. Before joining EQDerivatives, Pat was global head of derivatives at FTSE Russell Indexes. Prior to FTSE Russell, he was a senior v.p. at CBOE where he held many roles, notably being responsible for the launch of VIX futures.

About EQDerivatives:

EQDerivatives is the premier provider of cross-asset volatility, alternative risk premia and machine learning content, research and events for investors and portfolio managers globally. The company connects and educates thought leaders in the space by delivering insight in to the latest strategies, trends, allocations and innovations from those practitioners active in quantitative investing strategies and markets.
For more information, visit: https://www.eqderivatives.com/market-mapping

alternative risk premia, volatility, strategies, investment, funds


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