The $132B State of Wisconsin Investment Board is deliberately choosing smaller hedge fund managers in efforts to generate better alpha.
During a recent investment board meeting, the SWIB’s staff, with consultant Aksia, noted the fund is adopting a “core and satellite approach,” focused on quantitative strategies and relative value multi-strategy, particularly emerging or less crowded markets.
In recent months, quantitative strategies have attracted multiple investors due to high returns and innovation in space. By contrast, the relative value multi-strategy space is more “momentum focused,” meaning assets that are performing well continue to generate higher returns. The consultant anticipates growth in both these strategies.
By diversifying away from unexpected or poorly anticipated risks — the board aims to generate returns in different market conditions, rather than being concentrated in overcrowded strategies.
“We believe that if you get rid of the drawdowns and returns will take care of themselves. We want to separate alpha and beta because we only want to pay for that alpha piece as we do think it’s finite and it’s hard to capture,” said Ben Bronson, managing director at Aksia, during the meeting.
Going forward, the pension plan will utilize co-investments to target specific dislocations and opportunities with key partners, along with using the Managed Account Platform to better target volatility and capital efficiency.
“We’re always trying to find ways to keep that risk-adjusted return in that volatility high or within our expectations, and we tend to have more of each underlying subsector, and that’s really because we don’t know where the returns are going to come from at any given time,” added Bronson.
The pension plan invests in relative value, credit, equity long short, event driven and multi-strategy among others, as per its 2024 annual report.
“The Fund’s Alpha Team has grown its hedge fund portfolio to an impressive $8.3B, generating over $1.4B in value-add for the Wisconsin Retirement System from 2018-2023,” said Edwin Denson, SWIB’s executive director and chief investment officer, in a 2024 press release.
