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.
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.