Crisis Risk Offset (CRO) as an asset class - another fad?

The pension marketplace is abuzz with talk among consultants on how to categorize the usefulness of different investment strategies within a portfolio. Pension Consulting Alliance (PCA) has come up with a novel name and approach, Crisis Risk Offset (CRO), as an asset class category for managers who will have low correlation to growth risk. Academics will refer to this as negative consumption beta or the ability to do well in "bad times". Put simply, if stocks, as a growth asset do poorly, there should be a portfolio of managers or strategies that do well. We will not go into the theory of what this means other than to say that investors want assets or strategies that will do well if there are business cycle or consumptions risks.

This is a good simple framework and gets to the heart of portfolio diversification and the need for low correlation when traditional markets go down and get more correlated. Pension funds should hold a percent of their portfolio in managers who have this low correlation to normal growth (beta) investments. The percentage is associated with an investor's risk tolerance. 

The types of managers in this category include: Treasury duration managers, trend-followers, discretionary global macro, liquid risk premium alternatives, put buying, and reinsurance. Treasury duration managers take advantage of the flight to safety in a crisis. Trend-followers have the ability to go long or short in major asset classes based on price trends. Discretionary global macro managers can move between changing opportunities. Liquid alternatives associated with risk premiums can allow for nimbleness with either the manager or investors. Put buying offers tail protection. All have the opportunity to exploit extreme price moves or large market dislocations and still provide, in most cases, liquidity to investors.

A category called alternatives does not get to the heart of the issue associated with a crisis. A long/short equity manager will do better only because it may have a lower beta but not because it has a specific focus on exploiting market dislocations.  Trend-followers on the other hand have shown the ability to generate extra return when there are market divergences. Global macro can both avoid poor performing asset classes and exploit dislocations. 

Is this a fad? I think this is an advancement with our understanding of asset classes and strategies. CRO improves our language with describing what we are looking for when there is a discussion on diversification. Will this be the only way to describe diversification at the extreme? No, other consultants will develop their own language and description, but this further moves the discussion in the right direction.