Following the financial crisis, institutional investors began to place greater focus on investment objectives such as downside diversification, lower tail risk, and performance consistency. Institutional investors turned to hedge funds and other alternatives to incorporate more stable, diversifying return streams into their portfolios. But with unexpected shortcomings with their hedge fund investments, investors have become increasingly interested in more liquid, transparent strategies.
PGIM’s Institutional Advisory & Solutions introduce a new measure of performance sustainability, the Anchor ratio, which can help investors identify strategies and funds with more consistent and sustained performance, as well as other desirable performance characteristics.
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On average, IAS found that:
-
Absolute Return, Event Driven and Credit Long Short strategies provided relative consistency (as measured by the Anchor ratio), altogether with attractive risk-adjusted returns.
-
Equity Long Short was attractive from a risk-adjusted return perspective
-
Absolute Return, Multi-Strategy, Event Driven, and Discretionary Macro were most effective in controlling tail risk
-
Managed Future alone stood out for downside diversification
Objective |
Performance Sustainability |
Lower Tail Risk |
Downside Diversification |
Risk-Adjusted Return |
|---|---|---|---|---|
Measure |
Anchor Ratio |
95% CVaR |
Downside Equity |
Sharpe Ratio |
|
Absolute Return |
x |
x |
|
x |
|
Multi Strategy |
x |
x |
|
|
|
Event Driven |
x |
x |
|
x |
|
Volatility |
x |
|
|
|
|
Credit Long Short |
x |
|
|
x |
|
Equity Long Short |
|
|
|
x |
|
Macro* |
|
|
|
|
|
Discretionary Macro |
|
x |
|
|
|
Managed Futures |
|
x |
Learn more about PGIM Institutional Advisory & Solutions