Man Group: 'Alpha' Returns Crucial for Retirement Savers

Investment firm Man Group has released an analysis questioning the sufficiency of traditional market-following ("beta") investments for retirement savers. The report indicates that the new generation of "defined contribution" (DC) retirement savers will likely need to take on more risk, but Man Group argues this does not necessarily mean exclusively investing in broad equity markets.

The firm believes that historically strong equity returns seen over the past few decades may not be replicated in the future, and the equity risk premium may be shrinking. Instead of maximizing equity allocations, Man Group suggests it may be more effective to allocate a "risk budget" across multiple, uncorrelated return streams.

In its analysis, Man Group highlights "portable alpha" strategies. These combine traditional beta exposure with liquid, uncorrelated assets. This approach can lead to more capital-efficient investments, freeing up cash to generate additional returns elsewhere.

Man Group emphasizes that while risks associated with strategies using derivatives must be considered – such as increased margin requirements during market downturns or heightened volatility – diverse return streams can help reduce overall portfolio volatility and maximum drawdown potential over the long term. The firm advocates for creative approaches to retirement saving.