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EU Hedge Funds And Risk Parity

New York (HedgeCo.Net) – UK and European institutional hedge fund investors reveal a growing, but in some cases limited familiarity of Risk Parity strategies according to an independent Europewide study, commissioned by Aquila Capital, one of Europe´s leading alternative investment managers.

About one third of the 255 European institutional investors surveyed, from the UK, the Netherlands, Scandinavia, Switzerland, Germany, Italy, Spain and France, are familiar with the Risk Parity concept. Of those familiar with the concept, only 22% have so far allocated part of their portfolio to Risk Parity strategies and 60% of them have made allocations of under 2.5% to Risk Parity. In the UK, 14% of those aware of Risk Parity use the strategy, all of whom have allocated between 2.5-5% of the portfolio to the concept.

Key highlights include:

·       27% of institutional investors familiar with Risk Parity.

·       Of those familiar, only 22% have currently allocated part of their portfolio to Risk Parity strategies. 60% of them have made allocations of under 2.5%

·       50% of institutional investors familiar with Risk Parity, but not currently invested, would consider using the approach

·       20% of institutional investors who are invested in Risk Parity envision growing the allocation and 80% plan to keep it the same

·       255 institutional investors surveyed from across Scandinavia, Switzerland, Germany, Spain, France, Italy, Netherlands and the UK

Institutional investors who are invested in Risk Parity strategies envision either growing the allocation (20%) or keeping it the same (80%). 50% of institutional investors who are aware of Risk Parity, but have not yet invested, would consider introducing the approach to their portfolios.

The preference for asset classes to be included in a Risk Parity strategy varies strongly across geographies. The survey does, however, reveal an overall preference for equities, followed by fixed income, interest rates and commodities. These trends are mirrored in the UK market.

“The findings highlight a growing recognition of the value of Risk Parity strategies. Many investors, however, have not yet grasped their potential as an essential part of a well-constructed institutional portfolio. Diversification is the cornerstone of successful investment, but traditional approaches to capital allocation can create unintended portfolio risks. The challenge is to build greater awareness of the diversification and risk equalisation concepts that support Risk Parity. Risk Parity strategies can combine highly controlled volatility and truly effective diversification with high levels of liquidity, transparency and scalability, without compromising returns.” Stuart MacDonald, Managing Director at Aquila Capital said.

Risk Parity strategies have proven themselves through the different phases of market uncertainty, both before, during and since the Crisis. Aquila was one of the first investment managers to identify the opportunities in Risk Parity. Our Risk Parity strategies – through the AC Risk Parity 7, 12 or 17 funds or through Aquila’s ability to provide customised Risk Parity solutions – have consistently delivered strong risk-adjusted returns since 2004. This includes, for example, strong positive returns in 2008.”

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