Salient Brings Volatility to the Party
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Thursday, April 18, 2013

Salient Brings Volatility to the Party

Capitalizing on the phobias some investors still have of the markets, many asset managers tout products that are "low vol," that erase volatility like it was a disease.

Not Salient Partners. The executives at this $18 billion Houston-based asset manager want investors to get over their squeamishness towards volatility and use it within reason within their portfolios.

To that end, the firm has launched five funds in less than a year designed to introduce larger levels of volatility than investors are accustomed to. For example, Salient's risk parity fund is targeted to deliver a 15 percent standard deviation or volatility. The firm plans to launch a few more such funds over the course of the year.

Salient's president and chief operating officer Jeremy Radcliffe explained the move in this way.
One of our major focuses this year is growing our retail focused business. We have had extensive experience running various alternative products. Managed future funds, hedge funds as well as fund of fund strategies. What we saw in the marketplace over the last few years is a clear investor preference for liquidity, an appetite for solutions that were not only very low correlation to with traditional investments but were actually capable of granting some performance for investors that would be meaningful enough to play a role in their portfolios. Investors are just not getting what they are looking for from some of their investments.

Salient launched its first fund in July 2012 the risk parity fund. It then launched the Salient MLP & Energy Infrastructure Fund II in September of last year. They are already north of $100 million in each of these funds.

Salient then launched three funds so far in 2013: a managed futures fund, an alternative beta fund and a global equity fund.

"We believe we have a unique mutual fund lineup of five funds. We are not looking to be a firm with 30, 40 or 50 funds. We just want to have around 10 to 15 funds, and make sure each of those really meets investor needs," Radcliffe said.

A key element of these funds is their approach to volatility. For example, the risk parity fund. The fund, which serves as Salient's version of an all asset or global asset allocation fund, This is designed to provide investors a way to get exposure to markets like equities, commodities and also to momentum. It uses a momentum overlay to dial up or dial down exposure to markets that are falling or rising, respectively.

Meanwhile, it is targeted to deliver a 15 percent standard deviation or volatility.

Radcliffe describes Salient's approach to volatility in this way.
The constant for all of the quantitative strategy funds is to run at a high enough volatility so an investor can allocate a small percentage of their portfolio to one or more of these strategies and have them run at a volatility level that is high enough to make a difference in their portfolio.

Too often you have strategies that run too low, say at a 4 or 5 or 6 percent volatility. At the low level it is going to be very difficult to make a difference in your overall portfolio. It will be drowned out.

The key is to have, first, a strategy that is non-correlated, and that is running at high enough volatility to make a difference.

You can allocate 5 or 10 percent of your assets to these funds and potentially see an impact on your portfolio.

The funds are available on multiple RIA platforms, including Schwab, Fidelity and Pershing. It is also available on the UBS platform., he said.

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