The analysis begins with an exploration of the inadequacies of traditional risk parity benchmarking and proceeds to look at two alternative benchmarking methodologies based on extracting information directly from manager return data. The analysis shows there is no solid evidence of alpha for the cohort of managers examined with both approaches. In fact, the average manager under-performs the empirically estimated benchmarks, even after adjusting for the impact of manager fees.

According to David G. Eichhorn, CFA, NISA’s CEO and Head of Investment Strategies:

• “Risk parity, as a strategy, has helped many investors achieve higher risk adjusted returns – in no small part because of the adoption of leverage. But it is important not to confuse this outcome with manager skill/alpha.”
• “Our results indicate that investors would have done as well or better by holding the quintessential risk parity asset classes in proportions similar to that of the average risk parity manager’s holdings.”
• “Because these weights can be readily ascertained from manager time series either statically or dynamically, we believe that a passive approach exists that investors can utilize to seek better risk-adjusted performance and undoubtedly lower manager fees.”

To view previous NISA Perspectives posts, please visit our website by clicking here.

About NISA Investment Advisors, LLC
NISA Investment Advisors, LLC is a registered investment adviser, and manages assets for some of the largest institutional investors in the U.S. The firm is 100% employee-owned and based in St. Louis, Missouri. Client portfolios include investment-grade fixed income, derivative overlay and equity investments. As of March 31, 2022, NISA managed $306 billion in physical assets and $178 billion in derivative notional value in separate account overlay portfolios. In December of 2021, NISA was named a Best Place to Work in Money Management by Pensions & Investments, based upon anonymous surveys of employees by the publication¹. As a thought leader, NISA is known for its Pension Surplus Risk Index (PSRX®), a forward-looking estimate of the funded status volatility of U.S. corporate defined benefit plans, published monthly.

In March of 2022, NISA was named a Greenwich Quality Leader for U.S. Institutional Investment Management Services for the eighth straight year, based upon client interviews by a third party.²

For more information, visit www.nisa.com and see us on LinkedIn.

1. Source: 2021 Rankings announced by Pensions & Investments on December 13, 2021.  Pensions & Investments worked with Best Companies Group to conduct a two-step process for ranking participating firms from June, 2021 through August, 2021. No compensation was paid by NISA in connection with obtaining or using this ranking. NISA was one of 34 recipients in 2021 for the 100-499 Employee category.  To participate, a firm had to have at least 20 employees in the U.S., have at least $100 million of discretionary, institutional assets under management or advisement and be in business for at least one year.  Participating firms completed a questionnaire on firm’s policies, practice, benefits and demographics. Additionally, employees at participating firms were emailed an engagement and satisfaction survey. Visit pionline.com for more details, including past rankings and methodology.
2. Source: 2021 Rankings announced by Coalition Greenwich on March 2, 2022. Between July and October 2021, Coalition Greenwich conducted interviews with 811 individuals from 661 of the largest tax-exempt funds in the United States. These U.S.-based institutional investors are corporate and union funds, public funds, and endowment and foundation funds, with either pension or investment pool assets greater than $150 million. Thought piece participants were asked to provide quantitative and qualitative evaluations of their asset management and investment consulting providers, including qualitative assessments of those firms soliciting their business and detailed information on important market trends. No compensation was paid by NISA in connection with obtaining or using this ranking. NISA was one of four 2021 recipients. Rankings do not represent any one client’s experience because they reflect an average of experiences of clients who chose to participate. Visit www.greenwich.com for more details, including past rankings and methodology.

All investments entail risk including loss of principal; derivatives investments could lose more than the amount invested. 

Contact: 
Michael Herley for NISA Investment Advisors, LLC
[email protected] or 203-308-1409

SOURCE NISA Investment Advisors, LLC