Portable Alpha Gathers Steam
Sep 29th, 2006 | Filed under: Portable Alpha & Alpha/Beta SeparationBy: Phyllis Feinberg, MARHedge
Published: August 14, 2006
This article (reprinted below with permission from the publisher, MARHedge) covers a number of recent portable alpha transactions from Pennsylvania Employees’ Retirement Fund and The World Bank to Iowa’s Public Employees’ Pension and the Desert States United Food and Commercial Workers Local 99.
Critics often charge that portable alpha is really all about picking good managers or hedge funds - that it’s All About Alpha. Perhaps not surprisingly, Yoshiki Ohmura, lead manager of beta portfolios in GAM’s Portable Alpha Solutions group, points out that there is more to portable alpha that simply picking hot hedge fund managers.
“He (Ohmura) believes that a lot of people are focusing too much on the alpha, even though he says that having a stable source of alpha is key to the product. But it’s also important to look at your other components. In reality, the beta is going to be the volatile one. If you get that one wrong, you’re going to create much more damage to your product than on the alpha side.
Mellon and Citigroup are off and running, with GAM recently winning it’s first portable alpha mandate. Let the games begin!
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My understanding is that the idea is still based on active hedging; only it’s now portable. If so, the issues of cost and adequacy still remain.