130/30s: Turbocharging returns?

Thu Sep 27, 2007

130/30 funds look like a sensible hybrid of the long-only and hedge fund worlds, but are these strategies a magic bullet, or an accident waiting to happen?

Not quite hedge funds, short extension strategies are gaining traction. But they're no magic bullet

By Carolyn Sargent

In mid-August, as market volatility hit a four-year high and quantitative hedge funds spiraled downward in lockstep, the $5 billion Indiana State Teachers' Retirement Fund found itself interviewing candidates to run its first allocation to a 130/30 fund. Such portfolios - which are not quite hedge funds but can go short and leverage up - are becoming a popular way for pension funds to try to turbocharge their returns.

The vast majority of 130/30, or short extension, portfolios are managed by quant shops, and as the more storied names in the business - Renaissance Technologies, D. E. Shaw, Goldman Sachs Asset Management and AQR Capital Management - streamed red ink, the crisis gave Indiana pause. "In the midst of the turmoil, I definitely thought, 'Wow, is this something we should be doing?'" recalls...


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