Northwater launches new “portable alpha” funds
Apr 3rd, 2007 | Filed under: Portable Alpha & Alpha/Beta SeparationQuant manager Northwater launched two new funds today that it calls “portable alpha funds”. They’re interesting offerings that definitely bifurcate alpha and beta. But they also show how the term “portable alpha” is sometimes stretched to include anything that explicitly recognizes alpha and beta.
In a nutshell, the Northwater products combine either Lehman Agg or S&P 500 beta with Northwater’s market neutral fund of hedge funds. The betas are purchased synthetically (via swaps) and the majority of capital is then allocated to the market neutral fund of funds (which targets 275 bps to 475 bps of “alpha return” after fees). As a result of the construction of the swaps, the funds gain 100% exposure to either underlying index and 100% exposure to Northwater’s fund of funds.
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