PanAgora Asset Management expects to brings its risk parity fund range to Australia through the launch of a locally registered pooled vehicle.
The Boston-based manager said the strategy has gained considerable interest, as these strategies are said to curtail "black swan" events.
PanAgora chief executive Eric Sorensen is currently in Australia to speak with institutional investors about the strategy.
"Where market bubbles burst, we believe that a risk parity equity portfolio should fall more modestly compared to the MSCI World Index and recover losses in far less time," Sorensen said.
Risk parity is an investment concept that is becoming increasingly popular in the US, but has so far not been available to Australian investors.
These funds allocated to various asset classes such as commodities and equities, but instead of using the traditional method of allocating according to expected returns, this method allocates according to risk.
Risk parity funds aim to have each asset class contribute the same amount of risk to the overall portfolio.
"In a balanced fund, the risks are not as diversified as you think," Sorensen said.
"Let's say they have 60 per cent in equities and 40 per cent in fixed-income type instruments and you think 'well, that's balanced'. But not so, because every time there is a bad problem it turns out it is the equity asset that takes you down.
"So, literally 95 per cent of the downside of the risk is coming from that 60 per cent equity."
Sorensen also argued that when investing in an index, most of the allocated funds are concentrated in the largest companies.
"Of the 1500 or 1600 companies in the global MSCI universe, 100 or 150 of them are half the capitalisation and half the risk. So when money flows into equity markets that is where it goes and when money comes out that is where it comes out," he said.
The risk parity strategy tries to address this problem by lowering the exposure to high risk asset classes.
But risk parity also has its critics, and US fund manager GMO published a paper in March this year questioning several assumptions, including the idea that volatility is an important measure of risk.
Risk parity funds also often use leverage to amplify returns, which introduces another level of risk, GMO said.
PanAgora manages about $1 billion in mandates for Australian and New Zealand institutions.
Last month, it launched its first domestic fund, the Dynamic Global Equity Fund, which is a quantitative global equities fund.
Prior to the official launch of the fund, PanAgora said it had received $500 million in commitments from institutions.
