Overlay services

Controlling investment exposures with flexible and capital-efficient derivative overlay programs.

The challenge

Institutional investment portfolios often have components that do not work in harmony with each other – some are managed by in-house investment staff while others are outsourced to numerous specialty investment managers. Making a change to investment exposures or keeping them within a reasonable range of desired exposures can be a near insurmountable task. Oversight and actionability can be brought together however using an effective overlay program.

Why Russell Investments for overlay services

Russell Investments has a global team of seasoned overlay specialists who will work alongside your team to understand your portfolio requirements and help engineer a solution aligned to your specific investment challenges. We can create an investment framework providing improved visibility into investment exposures, and the ability to efficiently control these exposures using our robust Overlay services.

With Russell Investments' Overlay services, you can expect:

By managing total fund liquidity with an equitization overlay you can expect increased returns by 10-15bps.¹

Systematic rebalancing with overlays can typically reduce tracking error by 70%.²

Access to a global, multi-venue 24-hour trading desk for best execution and local execution expertise.

Gain additional resources and implementation expertise through our global team of 18 specialists.

Russell Investments’ Overlay Services include:

Cash equitization

Cash is necessary for liquidity purposes. Our solution converts cash exposures to equity and/or bond exposures using derivatives, adjusting for total cash holdings on a daily basis. Our turnkey management service adjusts exposures and handles all downstream aspects of managing those positions.

Policy implementation

Many institutional portfolios are managed to a Strategic Asset Allocation (SAA) but, as time passes these exposures drift in relation to each other. A disciplined rebalancing plan helps to keep such risks under control. With daily oversight of portfolio positioning, our Policy Implementation service can manage exposures to asset classes in the SAA via overlay transactions effectively solving cash drag and rebalancing policy issues at the same time.

Dynamic de-risking

Dynamic de-risking solutions are effective strategies employed with investors that manage surplus risk where the goal is to improve the size of the assets in relation to the liabilities. This includes pension plans managing assets relative to their long-term promise to beneficiaries.

A common form of such a mandate is often referred to as a glide-path portfolio, as asset allocations glide down in risk level as this goal is achieved over time. An overlay strategy provides a cost effective and timely implementation of the new target exposures and achieves the desired asset allocation when market opportunity presents itself.

Beta transformation

The mix of asset classes (or betas) in the SAA do not always coincide with the most fertile excess return (or alpha) opportunities.  Undesired asset classes can be reduced, and desired asset classes can be added, all using an overlay program.

Downside protection

Most institutional investors need to maintain exposure to risk assets over the long term in order to meet aggressive expected return targets. However, not all investors can weather the full downside risk of a major correction that could take years to recover from. Russell Investments offers risk management tools designed to reduce the frequency and/or magnitude of drawdowns in portfolio value resulting from significant market declines. Our Portfolio Managers can tailor solution parameters to align with each client’s specific needs.

Our comprehensive investment solution

Our global team of overlay specialists is experienced at tackling the more complex and challenging investment problems facing institutional investors using our proprietary technology and systems:

  • Proprietary system for aggregating account level data to enable overlay management
  • 24-hour agency-only global trading desk with specialization by market segment
  • Proprietary quantitative systems for managing futures tracking error to customizable benchmarks
  • Seamless integration of physical and overlay trading via trade order management system for more complex solutions

An experienced, well-resourced global team


Portfolio managers with average experience of 15 years


$82 billion globally in derivative exposure on behalf of 3rd party clients

overlay specialists

18 dedicated global overlay specialists, including 11 CFA Charterholders


$2.6 trillion derivatives traded globally in 2018

Source: Russell Investments, As of December 31, 2018. Assets trades and derivative exposure shown in US dollars.

When operational realities limit flexibility in running your investment plan, let us help design an implementation framework that allows for more effective management of portfolio asset allocations, cash and currency exposures.

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