Traditional and alternative investment managers now find themselves competing in a new battleground that combines the (1.0) beta exposure and quantitative methodologies of traditional indexed investment vehicles with the shorting and hedging strategies of alternative products.
Also called “long-enhanced products,” or “active extension products,” 130/30 funds–or for that matter 120/20 funds and 150/50 funds–are products with a net exposure to the market of 100%.
For instance, in the case of a 150/50 fund–a model used by Dallas-based Maverick Capital, Ltd., run by Lee Ainslie–out of a $100 initial investment, the manager shorts 50% of the portfolio and uses the proceeds to buy an additional $50 in stocks. With a $150 gross long exposure and $50 in shorts, the fund has a net 100% exposure to the market. The same concept applies for any gross long exposure from 120% to 160%.
So far, 130/30 funds, as they are generically called, have mostly emanated from large asset managers with strong quantitative pedigrees such as Goldman Sachs Asset Management, LP; State Street Global Advisors; ING Investments, LLC; Barclays Global Investors; or AXA Rosenberg Group, LLC. Hedge funds, including shops such as D. E. Shaw & Co., LP and Copernicus International, are the notable minority.
In July 2005, Maverick rolled out its first active extension product called Maverick Long Enhanced Fund, a product investing 150% in long positions and 50% in shorts, which makes for a net long exposure of 100%.