AllenbridgeIS Publishes Survey of Alternative Beta Strategies

Allenbridge Investment Solutions LLP (AllenbridgeIS), a leading institutional investment advisory firm, is pleased to announce the publication of a comprehensive survey of the ‘alternative beta’ or ‘quantitative investment strategy’ (‘QIS’) universe.

The survey, titled ‘Quantitative Investment Strategies: Beyond Fundamental Indexing’ was conducted by Benedicte Rabier, Sector Specialist at AllenbridgeIS, and Antti Suhonen who is a member of the AllenbridgeIS specialist network. The survey explores the size and scope of the QIS universe, investigating strategies offered by both asset managers and investment banks. The report looks into the various asset classes and strategy styles that QIS providers operate in, and summarizes the typical investment terms, alternatives for accessing the strategies, as well as reporting and other services offered to investors. Investor trends and attitudes regarding the benefits, considerations and obstacles to committing capital to QIS are also explored. A total of 29 providers participated in the survey in a combination of a written questionnaire and face-to-face meetings, giving us a comprehensive view of the market.

Our key findings are:

Size and scope of the QIS offering
‘ The QIS market is estimated to represent in excess of $500 billion of assets
‘ QIS are coming of age, with a number of strategies in different asset classes having over three years’ live track record 
‘ Over two thirds of the investment banks respondents and 83% of the asset managers respondents reported higher assets in their QIS business compared to the end of 2012, and many of the respondents expect multi-asset strategy portfolios in particular to grow in popularity

Investment terms
‘ Investment banks typically offer their strategies through derivatives (such as swaps) or structured notes, although some strategies are also available as funds
‘ Most asset managers offer their strategies as UCITS funds, although many are also open to run segregated accounts
‘ Liquidity of essentially all the QIS products offered by our survey participants is daily

Fees
‘ The fees charged on QIS can vary greatly, and the participants reported a range from index tracker-like levels (0.25% or even below), up to above 2% per annum for some of the most complex and proprietary strategies
‘ There are many different methodologies used for calculating fees; in particular,transaction costs are charged in a variety of ways by the QIS providers, hence a simple comparison of headline fees by different providers is usually not sufficient

Reporting
‘ Transparency is not as big an issue as we would have expected, and most providers would share information openly with investors and will even share the details of the methodology underlying the strategies under an NDA

Resources, marketing and processing
‘ Most investment banks started building their QIS business over seven years ago
‘ Slightly less than half (45%) of the asset managers have a live track record of over three years for their QIS offering

Positioning of QIS for investors
‘ Pension Funds are the largest investor segment in QIS for both the investment banks and asset managers. Many of the respondents reported a trend towards more institutional demand for QIS
‘ According to the participants, the main benefits of QIS are access to new risk premia and sources of returns, portfolio diversification and transparency
‘ The participants believe that the key considerations for a prospective investor in QIS would be investment rationale of the strategy, live performance record, sustainability of performance, fees and governance issues

Anthony Yadgaroff, Chairman of AllenbridgeIS, said:

‘We have seen significant increase in the interest in ‘smart beta’ or ‘alternative beta’ strategies, and the offering available to investors from both asset managers and investment banks is broader than ever. We at AllenbridgeIS feel that institutional investors need independent and unbiased analysis and research on the QIS market, and this report should serve as an introduction to what QIS has to offer.’

Antti Suhonen said:

‘Our study is one of the first of its kind, mapping the QIS offering from both banks and asset managers. We reviewed a major cross-section of the market, with nearly 30 participants taking part. We were impressed by the level of transparency and disclosure the participants offered, and think that the results of the survey will be helpful to investors considering entering the QIS market. We would be looking to follow up with a second report exploring the experiences and opinions of investors who are either investigating or already engaged in alternative beta strategies.’

Benedicte Rabier added:

‘The market is more than just fundamental indexing, and the proliferation of these products is what originally prompted us to take a closer look at the sector. We were very impressed by the breadth of offerings and the significant level of resources that banks and asset managers have dedicated to the research and development of this ever-expanding group of strategies. However, as a result QIS has become a complex area for investors, who are now spoiled for choice, and may find it difficult to differentiate between the various products and providers. Our goal is to cut through the complexity and provide investors better information to make their decision. We hope that this survey provides investors with the first step in this process.’

Investment Advice

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John Harrison

Managing Director - Institutional Advisory

Investment Analytics

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Joanne Job

Director - Head of Research

Alternative Investments

Tax Advantaged Investments

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Lauren Radford

Head of Business Management (Tax-Advantaged Investments)