Tuesday, December 11, 2007

130/30 Funds - Opportunity

Download the Merrill Lynch report August 2007


download Goldman Sachs report


In Brief about the opportunity

The term “130/30” refers to an investment strategy that maintains 100% net long exposure by a combination of 130% long (i.e. leveraged long) and 30% short. However, the term is also used more broadly to include funds that similarly net to 100% long exposure e.g. 135/35 or 125/25. These funds are sometimes referred to as “short extension” funds because the 100% long position has been “extended” to 130%, or “relaxed constraint” funds, because the constraint against shorting has been “relaxed”.

The basic value proposition of the 130/30 strategy is that it permits the manager to more fully express positive and negative views on individual securities than is possible through a long-only strategy, and thereby offers a significant opportunity to provide incremental return over a long-only strategy.

There seems to be significant anecdotal evidence that the fee structure for 130/30 funds may include up to 20% of performance above the benchmark index.

Hedge funds offering 130/30 strategies may be more successful in asset gathering because they have well established processes for shorting and a longer track record in equity long/short trading.

A bandwagon is rolling on 130/30. Asset managers are falling over themselves to offer these new style funds, which have emerged in Europe in the wake of the Ucits III regulation.

The estimate of the size of the current investments in the market is in the range $2bn-$5bn. 80 per cent contributed by European pension funds and the the remaining 20 per cent taken up by small institutions and some high-net-worth individuals.

Professional managers anticipate taht US success will be replicated this side of the Atlantic.

Funds have been launched by
Barclays Global Investors (BGI),
Fortis Investments,
Goldman Sachs,
State Street and

Many new launches are in the offing.

Goldman Sachs’ Flex products, which at the moment come in European, US and Japanese equity versions, follow a 135/35 format.

Benefit of the fund

Mark Samuelson, head of UK institutional business at Investec Asset Management, which has just launched a global equity product not limited to a 130/30 ratio, says the secretive nature of hedge funds makes investors nervous.

“People have no idea how the hedge fund process operates,” he says. “That has scared a lot of people off. What our product does is it brings both worlds together in a very transparent fashion. In our product people know what we bought what we sold and why we’ve done it. In addition to that the fees aren’t ridiculous like in a hedge fund.”

ING 130/30 Fundamental Research Fund

Investment Objective

The Fund seeks long-term capital appreciation.

Portfolio Management

Investment Adviser

ING Investments, LLC

Investment Sub-Adviser

ING Investment Management Co.

ING Investment Management is the investment arm of ING Group. Their broad scope encompasses Europe, Asia-Pacific and the Americas. They employ an active investment style to identify strong and improving business fundamentals and investment value for their clients. ING IM employs more than 700 investment professionals located worldwide, which puts them in a unique position to offer clients access to investment options on a global scale.

Portfolio Managers

Christopher F. Corapi
Portfolio Manager
Michael Pytosh
Portfolio Management Team Leader

Oct 2007

JPMorgan Asset Management has announced the launch of four 130/30 Funds aimed at institutional investors in Europe, the JPM US Select 130/30 Fund, JPM US 130/30 Fund, JPM Europe Select 130/30 Fund and JPM Europe 130/30 Fund.

130/30 strategies are appealing because greater capital is committed to insights. Shorting permits managers to commit more capital to stocks where they have high conviction, in both long and short positions. It also makes more efficient use of stock research by drawing on insights into unattractive stocks to maximise returns.


September 2007

The Bank of New York Mellon has introduced the first platform that provides complete support to managers of 130/30 strategies.

The bank and its subsidiary, Pershing LLC, are offering managers a 130/30 platform as a result of enhancements made to the prime brokerage capabilities at Pershing. Through this new platform, the bank can provide 130/30 managers with a range of prime services, including securities lending, execution and financing, and asset servicing capabilities such as custody, fund accounting and administration and collateral management.

A full suite of integrated services and financing functions needed to manage eligible 130/30 funds such as limited partnerships, 40 Act Funds, hedge funds and separately managed accounts is unveiled by the bank.

The Bank of New York Mellon currently has more than $20 trillion in assets under custody


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