State Street Global Advisors, the money management arm of State Street Corp., says it plans to enhance its alternative investment platform with products and additional staff as investor interest in hedge funds and other alternative products keeps growing.
Jane Tisdale, the senior managing director of absolute-return strategies at State Street Global Advisors, said it will launch long-short products in which fund managers can buy and hold as well as sell stocks short. It will also offer products specializing in equity hedge/directional strategies, fixed-income arbitrage, and currency trading, she said.
The advisory unit now offers nine alternative investment strategies. It has focused primarily on equity market neutral, fixed-income, and currency strategies, she said, but wants to expand into capital structures, arbitrage, merger arbitrage, and global macro strategies.
"We don't have a set number of products that we are looking to launch," she said. "We plan to continue to add alpha sources and build this platform over the next few years as new ideas come up."
Ms. Tisdale said that, when institutional and high-net-worth investors are not realizing strong returns from traditional market segments, they turn to alternative investment products as a remedy.
"Investors expect us to have a broad spectrum of products," she said. "We are building that product set so that we can continue to be a leader in the alternative investment space."
State Street Global Advisors manages $4 billion of alternative investment assets. Analysts said this is a minimal risk, considering that the Boston money manager has $1.5 trillion of assets under management or administration.
"A company the size of State Street has the size and depth to take certain risks that other companies can't," said Burton Greenwald, an analyst at BJ Greenwald Associates in Philadelphia. "Their investment in hedge funds is barely a toe in the water right now."
Ms. Tisdale said that alternative investments will never overshadow State Street's passive growth products in terms of assets under management but that they will "earn huge revenue" in terms of the fees they can generate.
"This will be an increasingly important part of our bottom line when you consider revenue and margins," she said.
"This is an important initiative," she added. "We expect to grow our alternative investment asset base significantly."
Analysts, however, said it would be difficult for State Street to grow significantly in hedge funds because firms entering the business are multiplying just as assets held in hedge funds are doing.
Hedge funds continue to be an important piece of a diversified portfolio, even after their growth rates moderated from a double-digit pace during the bear market early this decade. The Greenwich-Van Global Hedge Fund Index of portfolio values grew 5.5% through June 30 of this year, despite a 0.6% drop last month.
And Hedge Fund Research Inc. released data on Thursday saying the industry had attracted $42.1 billion of new money during the second quarter, bringing hedge fund assets under management to $1.225 trillion at June 30. This was the biggest quarterly jump in fund flows since Hedge Fund Research began tracking flow data in 2003.
Ms. Tisdale said State Street Global Advisors knows that as hedge fund assets burgeon so does the competition in the alternative investment marketplace. But the unit is confident in its position and its brand, she said.
"This is becoming an increasingly popular area as institutional investors become more and more interested in diversifying their portfolio," she said. "But we have a leg up. We have been catering to the institutional marketplace for many, many years with alternative strategies. We know what they are looking for, and we are building those products for the marketplace."
State Street plans to continue developing its platform with products and people, Ms. Tisdale said. Last week, it announced the hirings of three executives: Jonathan Chanis, from the hedge fund manager Caxton Associates; Henri Fouda, from Mellon Capital Management; and Todor Georgiev, from KBC Alternative Asset Management.
"We are actively looking for talent in the absolute-return space," she said. "We have a number of things in the pipeline, and we hope to be able to unveil them by late in the third quarter."
