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Funds are only as good as the managers who run them. That, at least, is the conventional wisdom. Fund types like global equity income or absolute returns are not in themselves controversial. It is the way they are managed – as defined by elusive terms like philosophy, style and approach – that counts.

This would be a truism, were it not for 130/30 funds. For this is a fund type that has itself become the subject of heated debate. First of all, managers cannot decide what to call it. New Star Asset Management has opted for "alpha generator", Investec Asset Management for "extension", F&C Investments for "enhanced alpha". So far just one fund house has launched a UK retail fund called 130/30.

Second, there is no consensus that the structure itself has a future. Helena Morrissey, chief executive of Newton Investment Management, dismissed 130/30 funds as “a load of old rubbish” in a recent interview with Investment Adviser. Phil Wagstaff, head of global distribution at Gartmore Investment Management, said although he was considering launching them for retail investors, they were better suited to the institutional channel.

The products’ history in the UK retail market explains much of the controversy. Many arrived in mid-2007. After four years of decreasing volatility across global markets, high alpha seemed synonymous with high return. But when market sentiment turned, high alpha started looking more like high beta. Extension strategies tended to fall faster than the market.

Is the 130/30 structure the victim of bad timing, bad management, or simply bad conception?

The standard excuse given for the underperformance of 130/30 funds over the past year is the failure of the quantitative models that tend to drive them. But this needs unpicking. First of all, it is not intuitively obvious why quantitative approaches work better than qualitative ones within the 130/30 structure. An innumerate stock picker ought to be able to pick a bad business as well as a good one.

There are three main reasons why 130/30 funds are associated with quantitative strategies. The first is historical. The structure originated in the US, where quantitative investing is much more widespread than in the UK. The large US pension funds tend to allocate a lot of assets to either tracker or quantitative funds because they cost less to run.

Second, quantitative processes necessarily rank all the stocks in a given universe by desirability. It will identify the worst stocks as well as the best stocks. Many stock pickers, on the other hand, only focus on the companies they like. As the old wisdom goes, you do not need to hold every outperforming stock in the index, but every stock you hold must outperform. Shorting, which involves identifying undesirable investments, therefore comes naturally to all quantitative managers, but only to some qualitative managers.

Third, quantitative teams can back-test a new strategy over 30 years to offer retrospective "proof" that it works. Richard Wilson, head of equities at F&C Investments, says this always gives quantitative managers the edge over stock pickers when launching new products. “The challenge is always to persuade people you can do it. A quant model can be replicated at every point in history to see whether it added value. That’s a huge advantage,” he says.

When 130/30 funds began to be launched off the back of academic research in the early years of the decade, quantitative managers were therefore dominant. This association persisted when the product began to be exported to the UK. It is unlikely it will stick, however, following the poor performance of quantitative managers since the onset of the credit crisis.

Quantitative methods have suffered from their reliance on valuation metrics. Value styles worked well for much of the last bull market, when everyone associated growth with the horrors of the tech boom. But early in 2007, the market flipped. Since then, market confidence has been concentrated in a limited number of growth stocks, particularly in mining and energy.

For the more quantitative value managers, this problem has been compounded by the emergence of a new financial landscape, which their models struggled to grasp. Correlations increased dramatically over the period 2004-07, between both sectors and countries. Volatility and risk therefore appeared to be falling – which meant greater risks were taken. But last October, volatility set in with a vengeance. What looked like a low-risk environment actually turned out to be just a trend.

This is one of the reasons why thematic investors have been among the winners of the past year. Their more imaginative, less historical, approach has allowed them to cope better with the "exceptional" market circumstances.

When the market settles, quantitative strategies may start performing again. Meanwhile, however, their woes have offered other styles a chance to try their hand at long-short vehicles.

Mark Donovan, co-chief executive of New York-based boutique Robeco Investment Management, launched a 130/30 stock-picking fund in March 2007. “At first consultants were sceptical. But the pendulum seems to have swung now. Quant managers have had a tough time lately. The consultants are beginning to see that fundamentally-driven 130/30 products make sense too,” he says.

Not all qualitative managers are comfortable with the idea of running long/short portfolios, however. One significant barrier to entry is the need for complex risk management systems to control derivatives. “Running 130/30 funds which are traded daily is extremely complicated,” says Mr Wilson, pointing out that most hedge funds only trade monthly.

The other major difficulty is finding a manager with the right skill set. M&G Investments has said 130/30 funds are “on the product road-map” but cited this obstacle. “The challenge any fund house has is that long-only managers don’t necessarily make good long/short managers,” Jonathan Willcocks told Investment Adviser recently.

The skills required of a 130/30 fund manager lie uncomfortably between those to be found in abundance in the long-only world on the one hand, and in the hedge fund world on the other.

Richard Plackett, head of the UK small and mid-cap team at BlackRock, manages a hedge fund as well as various long-only funds. He says that while the fundamental approach to picking stocks is the same, shorting requires a different approach to portfolio construction.

“For long positions, the upside is unlimited and the downside is limited to the amount you put in. For short positions, the opposite is true. That means if you get it wrong, the problem gets worse, not smaller,” he explains.

Mr Plackett therefore maintains smaller short positions than long positions, on average. “You need time to react if it goes wrong,” he says. “It’s these disciplines in portfolio construction that long-only managers have trouble adjusting to.”

But equally, hedge fund managers do not necessarily make good 130/30 fund managers, according to Mr Wilson. Not only are they not used to daily trading, but – more importantly – they are used to absolute, rather than relative, returns. “Every decision has to be taken relative to the benchmark, including the short positions. That is the world long-only managers are used to,” he says.

But while he believes too many managers have opened 130/30 funds without the necessary skills, Mr Wilson is convinced they are here to stay. “There is greater and greater pressure to offer higher returns, and you can’t just keep on taking bigger and bigger long-only bets. And there is nothing wrong with the theory,” he says.

“They haven’t performed well, which is sad. But in the long term, that doesn’t worry me. We need to provide a proof statement over time. Then it will become more common.”