Portable Alpha: Taking Returns with You
Jul 5th, 2006 | Filed under: Portable Alpha & Alpha/Beta SeparationBy: Edward Kung, Babson Capital Management
Published: April 29, 2005
Excerpt:
“Portable Alpha—it sounds like the latest competitor for Apple Computer’s iPod digital music player or Research in Motion’s BlackBerry handheld communications device. But far from being another gizmo for today’s executive road warrior to carry around, portable alpha is an emerging strategy for institutional (and other sophisticated and generally tax-exempt) investors to capture additional return.
“The search for return is on as investors face the prospect of more muted market returns after the outsized gains in the ‘90s. Pension funds in particular face a daunting task making sure future liabilities can be covered by plan assets. This has spawned considerable interest in hedge funds and alternative strategies and asset classes.
“Below we take a look at one such strategy: portable alpha. (Note: this Staff Letter is based on a longer paper by the author that appeared in the Spring 2004 edition of the Journal of Portfolio Management, which we have abridged and adapted with permission from Institutional Investor, Inc.)”
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