Neuberger Berman Launches Risk Parity Fund With $50M

Aug 28 2014 | 10:40am ET

Neuberger Berman has launched a risk-parity strategy with $50 million.

The Neuberger Berman Dynamic Beta Navigator Fund will be managed by Wai Lee and Hakan Kaya of the firm's Quantitative Investment Group, a source with knowledge of the strategy told FINalternatives.

The new fund carries a minimum investment of $100,000 according to regulatory filings.

Risk parity funds seek to allocate capital to assets based on expected contribution to risk, as opposed to expected asset returns.

While the fund is new, the strategy is not: Neuberger has run it in customized accounts since 2012.
Lee and Kaya have explored the subject of risk parity in a number of reports, including one entitled Risk Parity: 10 Common Misconceptions.

After dealing with criticisms such as “Risk parity is trend-following—it sells the losers and buys the winners” (a “fallacy” Lee and Kaya believe results from “oversimplifying the mechanics behind the dynamic rebalancing of a risk parity portfolio, as well as from tying fair value estimation of an asset entirely to the market price”) and “The benchmark for a risk parity portfolio should be 60/40 or cash” (they suggest it's the risk parity portfolio that should be the benchmark), they conclude:

“[W]e do not contend that risk parity strategies are a 'magic bullet,' but we do believe they are an effective means by which to manage a diversified asset allocation portfolio from a strategic perspective.”

Neuberger Berman is a 75-year-old private, independent, employee-controlled investment manager with offices in 16 countries and about 2,000 employees. The firm manages equities, fixed income, private equity and hedge fund portfolios for institutions, advisors and individuals worldwide. It had $242 billion in client assets under management as of December 31, 2013.

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