Standard Life Investments, the global investment manager, issued a white paper today to address a nagging question among institutional investors still mindful of the “pain and hardship” caused by the sharp market decline of 2008-2009: how to achieve high quality risk-adjusted returns when most, if not all, conventional wisdom about diversification and risk budgeting went out the window?

“Being Risk Diverse – Not Risk Averse”, authored by Christopher Nichols, Investment Director for Standard Life Investments, outlines a unique and well-established multi-asset investment approach that can be deployed by many investors. It can be used in a wide variety of portfolio construction methodologies in place of equities to seek higher quality risk-adjusted returns – through all the markets’ ups and downs. Adding to the strategy’s value is that it also provides investors – notably pension funds, endowments, foundations and charities – with transparency, liquidity, and relatively low fees.

Nichols’ take off point is Standard Life Investments’ experience with its own defined benefit pension plan. In the ultimate “eat your own cooking” tale he reveals how the TMT crash forced a fundamental review of how the plan was investing. The result was that in 2005 Standard Life Investments deployed a comprehensive absolute return strategy for the whole pension fund. The subsequent success led to the formal launch in the U.K. of the Global Absolute Return Strategies (GARS) portfolio which today manages over $8 billion for some 260 institutional investors – and counting.

The white paper then looks at the full range of portfolio construction methodologies to show how GARS might apply. This includes its utility in defined benefit and defined contribution pension plans.

GARS has delivered gross annualized returns of 10.75% over the last three years (up to August 30, 2010) with a volatility level of 6.4%. Over the same period, the MSCI World TR GBP Index returned minus 1.26% with volatility of 20.33%.

GARS is new to the U.S. market and is available to qualified and institutional investors. Today, Standard Life Investments also announced that GARS has been adopted by UBS on a sub-advisory basis to manage a 25%, or $116.5 million, component of its UBS PACE Alternative Strategies Investments fund.