Last week, we recommended a new book on portable alpha called “Portable Alpha Theory and Practice”.  It’s about more than just portable alpha per se and includes chapters on the nature of alpha, LDI, alpha-beta separation and implementation issues.

Impressed with what we saw in the book, we called up its author Sabrina Callin and have now arranged to provide you, the loyal AllAboutAlpha.com reader, with two of its chapters for free.

Today, we give you chapter one – the introduction by Callin that provides a good summary of the entire book.  And next week, we’ll post the Epilogue by Callin’s PIMCO colleague Chris Dialynas.

But for those who are totally pressed for time, here’s a “summary of the summary” reflected by the chapter titles and a few key excerpts from chapter one:

• Borrowing to Achieve Higher Returns: “If you stop to think about it, there is not a single application that falls under this now very broad portable alpha umbrella that does not involve some form of borrowing…”
  
• Leverage – The Good, the Bad and the Ugly: “A relevant corollary may be the assumption that passive indexing is the most conservative approach to investing.  This is simply not true…”
  
• The Confusion Surrounding Portable Alpha: “Part of the confusion among investors when it comes to risk and return in a portable alpha context lies with the increasingly casual and often theoretically incorrect use of the alpha and beta terms in our industry.”
  
• Portable Alpha Definitions and Trends: “Portable alpha definitions and associated terminology can vary substantially depending on the person providing the explanation.”
  

• Back to the Basics: Investments 101: “As innovative and new as many deem the portable alpha and alpha-beta separation concept, it is remarkable just how much of the underlying investment theory is best explained by some of the principles that were introduced almost half a century ago and are still as relevant today as ever.”
  
• Asset Allocation and Portable Alpha: “…departures from the traditional may be met with hesitation, the benefits that are likely to accrue to long-term investors are compelling and should most certainly be considered.”
  
• Alpha, Beta, and Alpha-Beta Separation: “Alpha and beta are undeniably useful terms in the world of active investment management. However, they are rendered meaningless if a proper benchmark that reflects the primary risk factors of the associated investment strategy is not identified…”
  
• Global Sources of Portable Alpha, Associated Risks and Active Management: “…it is critical for investors to have a reasonably thorough understanding of the primary risk factors and risk factor ranges in each component, in addition to understanding the potential value-added that may accrue to investors as a result of tactical risk factor allocation and security selection…”
  
• Derivatives-based Beta Management: “It is important to note that, in the most basic sense, derivatives represent a borrowing arrangement not entirely different from securities lending, as one example.”
  
• Portable Alpha Implementation: “…the three basic approaches to portable alpha implementation: the fully integrated approach, the completely segregated approach, and something in between which we call semibundled.”
  
• The Real Holy Grail: Risk Measurement and Management: “…may be critically important given the inherently levered nature of portable alpha strategies…”
  
• Liability-Driven Investing: “…liability-driven investing (LDI) is right up there with portable alpha in terms of not only the number of conferences dedicated to the topic but also the number of investors who are focused on the potential benefits of such an approach.”

We hope that gives you a taste for the book.  You can download the entire chapter one here at AllAboutAlpha.com.

(Excerpted with permission of the publisher John Wiley & Sons, Inc. from Portable Alpha Theory and Practice: What Investors Really Need to Know.  Copyright (c) 2008 by Pacific Investment Management Company, LLC. This book is available at all bookstores, online booksellers and from the Wiley web site at www.wiley.com, or call .)