MutualFundWire.com: Does an Alpha-Beta Squeeze Explain Sequoia?

MutualFundWire.com

The insiders' edge for 40 Act industry executives!
an InvestmentWires' Publication

Monday, April 28, 2008

Does an Alpha-Beta Squeeze Explain Sequoia?

Old-fashioned asset managers are caught in a squeeze between alpha-chasers and beta-watchers even as industry growth is slowing. Add equity fund investors pulling cash to the mix and the signs are that the times are changing. That is the thesis of a dire outlook for asset managers published by the Financial Times.

The article points to these trends as a reason for the growing popularity of 130/30 funds (the fund industry's answer to the alpha-chases in hedge funds) and the reopening of a number of high profile funds, including: Fidelity Magellan and the Sequoia Fund.

Reporter Deborah Brewster also cites a consensus that the industry will only see two percent growth going forward. She cites unnamed analysts for the estimate. Indeed, the lack of precision is one problem with the article, which manages to conflate defined benefit plans with mutual funds (the shift from DB to defined contribution plans is boosting mutual funds as assets shift from separate accounts).

The article also includes two gems of quotations. In explaining the opening of a Pimco's Unconstrained fund, she states that it "will invest in fixed-income securities without being tied to a particular asset class or strategy." Last we checked fixed income was still an asset class.

She also digs up a potentially embarrassing quote from Deutsche Asset Management president Kevin Parker:

"You can do nothing, which is a strategy. Milk the business for as long as it goes. But some day, maybe in my lifetime, the world will be split into passive investors and into alternatives. What's left in the middle is an endangered species."