BlackRock explains the thinking behind UK Absolute Alpha

Tue Sep 21, 2010

In 2001 the UCITS III framework came into force and for the first time it brought hedging strategies to the mass affluent market. Prior to the framework most traditional asset management firms only had bull market product ranges – they were single direction, long-only and relative return funds. One of the first asset managers to take advantage of the new rules was BlackRock, now the largest asset management firm in the world.

In 2005 it launched the UK Absolute Alpha fund, one of the first and now largest funds, to use hedge strategies funds within the UCITS III wrapper with an aim to generate a positive return in the long term.

When the rules came out, Tony Stenning, head of UK retail at London-based BlackRock, says for the first time realised that the new wrapper could potentially generate an absolute return within a regulated environment.

He says: "When the most recent rules came out we noticed that over-the-counter-derivatives were included in the framework which allowed us to use swaps (we use contract for difference) and we could now go short within the wrapper so long as it was a transferable security."

Investors are generally happy when the investment firm generates a positive return and are disappointed if investment managers underperform a rising market, Stenning says. The conversation is very different however, if,...

ISSN: 2151-1845 / CDC10004H

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