03/07/2012

AQR Finding Demand for 130/30 Strategy

(SEE CORRECTION BELOW) AQR Capital has seen a surge of investor interest in an equity fund running an out-of-favor strategy that could be due for a comeback.

The Greenwich, Conn., firm recently collected more than $100 million for its AQR Equity Plus Fund. The vehicle, which launched in 2009, follows a so-called 130/30 strategy, meaning it places long bets representing 130% of its equity and short positions equal to 30%. Proceeds from the short sales fund the added exposure on the long side. Like other funds employing the approach, the entity’s actual long positions can total 120-140% of net assets while short positions can be 20-40%.

On top of the fund inflows, AQR has landed an additional commitment of $300 million for the strategy — presumably to be managed in a separate account.

130/30 funds, also known as short-extension vehicles, experienced rapid growth in the mid-2000s. But the trend had run its course by 2008, when tumbling markets left managers with disappointing performance numbers for their first few years — leading many investors to dismiss the strategy as a fad.

Now, with the market recovering, there’s a growing sentiment that the product could catch on again. “Demand is there for alpha-enhanced strategies and shorting to reduce volatility, and AQR is a flagship name,” one asset manager said.

The AQR fund, as is typical for 130/30 vehicles, is registered as a mutual fund. Part of their appeal to investors is that unlike hedge funds, the vehicles don’t charge a 20% performance fee. But despite the mutual fund structure, institutional investors tend to view such vehicles more like hedge funds.

AQR has set a minimum investment requirement of $5 million for the vehicle. The offering is one of a number of hedge funds and mutual funds the firm has been tailoring to its institutional clients in recent years. AQR has $43 billion under management.

CORRECTION (3/14/12): This article incorrectly referred to AQR Capital’s AQR Equity Plus Fund as a mutual fund. It’s a hedge fund.

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