Institutional investors in the US, Australasia and Scandinavia have been early-adopters and pioneers within the alternative risk premia market.
Scandinavian banks and pension funds in particular have driven the niche but growing market. As an example, Norway’s Norge Bank Investment Management conducts its own research of equity risk-factor modeling. Swedish pension fund SPK added alternative risk premia to its portfolio in 2014 in response to low interest rates and new regulation. The money manager invested about 20% of its assets in alternative risk premia strategies – making it among the first to actively participate in this new trend in institutional asset management.
Other notable early adopters in Scandinavia include Danish pension fund PKA.
Alternative risk premia strategies aim to gain exposure to uncorrelated return sources that are commonly harvested by hedge funds. Part of the attraction is that they can do so without the high fees typically associated with hedge funds. Risk premia funds target factors responsible for superior returns. Like hedge funds, they can amplify returns by short selling and using leverage and derivatives.
By generating absolute returns through long-short positions, risk premia funds can offer returns that are uncorrelated to broad equity markets, which can assist in portfolio diversification.
Alternative risk premia investing is a fast-growing market led by the early pioneers but spreading globally, particularly in the US, Europe and Australaisa.
