Absolute return investing is our purest expression of alpha and encompasses a broad range of strategies with low correlation to traditional financial market returns. These include the following hedge fund strategies: discretionary macro, event / risk arbitrage, quantitative / systematic trading, equity market neutral, fixed income relative value, insurance-related strategies and style premia strategies. We expect our absolute return allocation to preserve capital in a market dislocation and thus to be a potential source of liquidity for rebalancing.
How we invest
Our absolute return portfolios are broadly defined to include both “structural return” strategies where a risk premia can be quantified and harvested (e.g., merger arbitrage, insurance, or credit strategies), and “trading alpha” strategies (e.g. discretionary macro, fixed income relative value, equity market neutral) which are more reliant on exceptional manager skill. Given the disruptive impact of technology on financial markets, our allocations include an increasing focus on quantitative strategies with a select number of best-in-class managers who have the research and execution capabilities to systematically harvest alpha from public markets.
Our best ideas in absolute return are captured by the Partners Capital Harrier pooled vehicle, which offer diversified and dynamic exposure to approximately a dozen core absolute return strategies. Absolute return also forms the core of the Partners Capital Master Portfolio, our liquid multi-asset class vehicle, which benefits from a portable alpha approach whereby desired market beta returns are delivered most efficiently with ETFs and futures.
Through an insurance-linked securities manager, we have written bespoke, privately negotiated retrocessional insurance contracts which insure the losses of reinsurance companies in the event of catastrophic natural disasters. Reinsurance companies are structurally forced buyers of retrocession insurance as this is required to maintain their credit ratings which, in turn, enable them to write insurance policies. We have taken advantage of the pricing dislocation in the wake of an exceptionally active hurricane season in 2017, as we had done similarly in 2011 after earthquakes in Japan and New Zealand.