Special Reports » OTHER REPORTS » GLOBAL TACTICAL ASSET ALLOCATION

— Jean-Francois Pincon, CAAM

The use of derivatives has deterred UK and European pension funds from implementing GTAA strategies but that has begun to change. Simon Hildrey reports on developments in the GTAA landscape.

European pension funds’ search for strategies that can add alpha has led to a growing interest in global tactical asset allocation (GTAA), particularly in the past two years.

Carolina Minio-Paluello, executive director and portfolio manager of the quantitative resources group at Goldman Sachs Asset Management (GSAM), says that because GTAA strategies make use of derivatives, it has taken a number of years for UK and some European pension scheme trustees to become comfortable with awarding such mandates.

A GTAA program can be expected to increase returns over and above those of strategic asset allocation.

Dr Peter Higgs reports on how the GTAA market has changed, mandate design and funding options.

Tactical asset allocation (TAA) has historically involved tactically increasing the exposure of an institutional portfolio – for instance, pension funds or insurance companies – to markets that the TAA manager’s research indicates are relatively attractive and reducing its exposure to markets that are less attractive.

— Dales: ‘refer to the Fundamental Laws of Active Management’

Andrew Dales demonstrates how restrictions imposed on an investment strategy can reduce the transfer coefficient and therefore hurt investment performance.

Beating a benchmark consistently is difficult, as the history of active management shows. However, asset allocation overlays seem to generate more consistent performance than typical long-only managers.

So, why have asset allocation overlays performed so well relative to long-only asset allocation approaches? Are their managers that much more skilled than their mutual fund counterparts? Can this performance difference be expected to continue?