Blue Sky Alliance FundBlue Sky Investment Science (‘BSIS’) is the Hedge Fund division for Blue Sky Alternative Investments Limited. Blue Sky Investment Science Asset Management Pty Ltd (‘BSISAM’) is an Investment Manager that focuses on risk as the preeminent factor in portfolio construction. Under this approach, BSISAM seeks to maximise returns for the strategies within pre-determined risk budgets. This is termed Strategic Risk Allocation (‘SRA’) and is distinct from the standard portfolio construction approach of Strategic Asset Allocation (‘SAA’).
SRA describes the type of mandate given to the fund manager. An SRA mandate is not dissimilar to a traditional SAA mandate, however emphasis is placed on volatility targeted risk allocation rather than setting target allocations for various asset classes.
Investors want the highest returns possible but they also want to avoid excessive risk. Consequently, all SRA portfolios have specific volatility targets not just expected return targets.
Performance of the strategies is driven primarily through the following sources:
Risk based approach: SRA methodology targets risk (volatility) rather than specific asset classes as the driver of returns.
Diversification: Greater diversification of risks allows the fund to generate higher returns for equivalent risk of other strategies i.e. higher information ratio.
Tactical tilts: Depending on the strategy, the manager has the ability to tactically shift exposures up or down depending on the underlying economic conditions.
It is important that we define what we mean when we use the word risk. Risk in the context of SRA is the volatility of returns. Two investments might have equal expected returns, say 13% p.a., but investors will prefer the investment that has the lesser volatility in its series of returns over time. Of course other risks are relevant when investing. Before investing in the Blue Sky Alliance Fund ARSN 140 253 685 (‘Fund’), investors should consider the risks associated with an investment in the Fund and these are disclosed in the Product Disclosure Statement (‘PDS’).