06/13/2012

PanAgora Opens Equity Vehicle to Outsiders

PanAgora Asset Management has begun marketing an equity fund that has delivered a 17.3% gross annual return investing partner capital since 2010.

The vehicle, PanAgora Diversified Arbitrage Fund, takes long and short positions in large-cap stocks based on a combination of quantitative analysis and value-driven research. The Boston firm launched the fund in September 2010 with $9.6 million of insider money. In recent weeks, investor-relations chief Rob Job has begun pitching it to outsiders, with a focus on institutional investors.

The fund targets a 10-16% net return via a variety of equity strategies, including fundamental long/short, convergence trading and “shareholder-base change,” which targets stocks as they’re added to or dropped from indexes. Capital is allocated to each strategy opportunistically.

The fund has a six-member investment team led by George Mussalli, PanAgora’s chief investment officer for equities. Mussalli oversees almost all of PanAgora’s $25 billion of assets, most of which is managed in long-only funds and separate accounts.

PanAgora has about $2.5 billion in hedge funds and hedge fund-like vehicles. About $1.5 billion of hedge fund assets are managed using a “risk parity” approach that invests in a range of uncorrelated asset classes. Indeed, Edward Qian, who runs the risk-parity program along with Bryan Belton, is credited with coining the term in a 2005 white paper.

Last month, PanAgora launched an offshore version of its risk-parity vehicle with more than $100 million. The firm sees strong demand for the strategy outside the U.S. and expects the new vehicle, PanAgora Diversified Risk Multi-Asset Fund, to become its flagship risk-parity offering.

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