"Bundled" Portable Alpha: A Bridge Across The Portable Alpha Chasm?
Jul 4th, 2007 | Filed under: Portable Alpha & Alpha/Beta SeparationWhile nearly all institutional investors are now clear about the benefits of portable alpha, many are still put off by its often complex mechanics. Unlike a simple active long-only mandate, a portable alpha strategy can often involve multiple accounts, the assumption of counterparty risk when using swaps for beta exposure, and cash management and rebalancing due to collateral requirements, not to mention new reporting and analytical requirements. These challenges – amplified by the headline risk of potentially dropping the ball somewhere along the line – have put the breaks on portable alpha programs at many institutions. This, even as these investors readily acknowledge the theoretical advantages of such a strategy.
So says Angelo Calvello of Man Investments in an “institutional investor only” white paper released earlier this year. Calvello is one of the instigators of the alpha-centric revolution, using the term “alpha-centric” as far back as 2005 (see related posting). Acknowledging the operational challenges inherent in a relatively complex strategy such as portable alpha, he now proposes a “bundled” solution that wraps the various components of portable alpha into one entity, such as a special purpose vehicle or a fund). According to Calvello, this would dramatically simplify the lives of pensions and endowments that are current reticent about diving into portable alpha.
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[...] All About Alpha on the use of a bundled structure to hide the oftentimes complex nature of portable alpha strategies. [...]