Man Group and AQR test ways to mimic private equity returns
Man Group, AQR and other asset managers are responding to the popularity of private equity investments by trying to replicate the sector’s returns at a lower cost than the real thing.
Both companies are working on strategies that also give investors more flexibility than private equity, which requires them to lock up money for a long time, the Financial Times reported.
Low interest rates have prompted a wave of money going into private equity as investors seek returns. In response, Man, which manages $113bn (£84bn), launched a “liquid private equity” fund in April that invests in publicly traded small and mid-cap US companies instead of private equity funds.
Investors in Man's fund will be able to withdraw their money with a week’s notice and will pay fees of 0.5% to 1%, the FT said. AQR, a $225bn US asset manager, is in the early stages of exploring whether it can extend its quantitative approach to private equity.
“We’re not people who think … that quant will work everywhere,” AQR’s boss Clifford Asness told the FT. “Private equity is bespoke, the data are very iffy. Then again, they charge a ton.”
The companies' efforts follow a paper published in 2015 that argued private equity returns could be emulated by making a leveraged bet on smaller company shares. Private equity firms argue they make money by taking a company out of the public glare and applying discipline to improve performance.