Going Long Is So Yesterday

"True originality consists not in a new manner, but in a new vision."

Edith Wharton (1862-1937)

Well done Boyer Allen! You have decided to tread in the considerable foot-steps that were first laid out many years ago by hedge funds the likes of Maverick, D.E. Shaw, AQR and numerous others. When the biggest issue related to growing existing institutional portfolios is that you do not have any long-only product why not create your own by simply decoupling your long/short equity offering and entering the space.

The trouble with this strategy is that the manager is now in the "margin vs. volume game" offering long-only, low margin products. It also now pits his product with a larger field of competitors, and guess what, those long picks might not outperform their respective active manager mutual fund peer group after all. Wouldn't that be ironic.

By effectively chasing beta, managers like Boyer Allen are conceding that it has been tough sledding gathering assets from institutional mandates in the post Credit Crunch world. After a period of poor performance that many suffered in 2008 it also raises the question whether investors are better served adopting the cheaper, passive ETF route than the expensive, active manager route that often fails to match the returns of the passive index on the upside.

Critically, the decision by Boyer Allen and other Asia equity market specialists is one of diversification and having a product that can sell regardless of the market cycle. They may be better served blending hedge and long-only products in "new ideas" rather than to churn out ideas rooted in active management that is fast being superceded by low-cost passive alternatives. Time for hedge fund managers to get creative and develop interesting, better performing ideas rather than changing the wrapping! If not, they will suffer from critics who contend that they are more often levered beta factories. Maybe they should simply focus on being better alternative investment in the first place. Mahalo.