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Integrated Portfolio Solutions
Alternative Investment
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HOW PORTABLE ALPHA STRATEGIES CAN IMPROVE RETURN October 2004 The subject of portable alpha reminds us of an old joke about a man who, having dropped his wallet at night, was frantically looking for it, but only under a bright street light. When asked why he didn’t search in the darkness, he replied, “Because it’s too hard to see it over there.” Alpha, like the lost wallet, is not likely to be found where it can be most easily seen. Yet it can be found where it is and moved elsewhere, using portable alpha strategies. Alpha is the value added by a manager over a benchmark return. In a portable alpha strategy, futures are used to transfer alpha from the dark corners of the market where it is more likely to be (e.g., hedge funds) to the brightly lit, picked over places where it is not (such as traditional long-only U.S. equity strategies). |
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