GTAA: A Case Study From AIMCo

Alberta's sovereign wealth fund has given a rundown of its experience with global tactical asset allocation.

(December 11, 2012) – What does it take to put together a global tactical asset allocation (GTAA) strategy like the Alberta Investment Management Company’s (AIMCo)? 

Resources and planning, according to a how-to paper by AIMCo’s CIO/CEO Leo de Bever, Deputy CIO Jagdeep Baccher, Special Projects Adviser Ashby Monk, and Consultant Roman Chuyan. The report, “Global Tactical Asset Allocation for Institutional Investment Management,” details four key factors they discovered for implementing a successful GTAA approach: 

1. A skillful team able to identify investment opportunities 

2. A robust data management system delivering clean position and valuation information 

3. Clear accountability for strategy implementation 

4. Timely, accurate feedback from management on team performance. 

With these elements largely in place, AIMCo reports it is now adding 0.15% to 0.20% on top of its total returns. GTAA strategies tend to add these small top-ups to margins by taking advantage of short-term imbalances and mispricing. But the approach has more to offer funds’ bottom lines than “nickel and dimes,” according to the authors: “Once every decade or so, as in 2000 and 2007, GTAA can pay off in a big way, provided the right talent, systems, data and processes can provide the GTAA team with enough conviction to overcome fear of career risk in making decisions big enough to count.” Today, the paper continues, AIMCo “is now comfortable taking larger positions should a once in ten year extreme event present itself.” 

AIMCo has $70.8 billion under management, and little oversight from the provincial or federal government. aiCIO took a look at a handful of state-of-the-art data management systems in the December issue, including AIMCo’s. De Bever told aiCIO it’s an integral part of the fund’s operation: “It’s risk exposure; it’s a current outlook on the markets; it’s your current asset mixes,” he described. “The system shows you where we’re making money and where we’re losing money. Most funds have something like this in a printed form, but that’s not dynamic—it comes out every quarter, at best…It’s worth the money.” 

But not every fund has the capital to overhaul its IT infrastructure as AIMCo did. A bespoke system is ideal, of course, but other options are emerging for asset owners looking to better manage their data. 

One company, a three-year-old start-up called Addepar, has about 80 Silicon Valley-types hard at work on off-the-shelf dashboard systems for private wealth funds, institutional investors, and family offices. (Off-the-shelf may be an exaggeration, but certainly they’re more standard than the all-custom job AIMCo uses.) 

Arranging a skillful team, measuring their performance, and accountable implementation may all be within reach for highly motived small and mid-sized funds looking to pursue GTAA. At the moment, data systems could be the biggest hurdle. 

But according to AIMCo, it’s these factors that make GTAA achievable for a broad range of asset owners: “In our experience, the key factor driving the success of our GTAA stems from the hard work we have done [to] develop world-class talent, systems, investment decision-making processes, and governance capabilities. Ironically, it’s these ‘mundane’ factors that have helped to create some of the most value in our investment operations.”

Related Article: Asset Owners on the Cutting-Edge of Data Management

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