One of portable alpha’s originators says concept has evolved, in some cases, into something “vastly different”
May 11th, 2008 | Filed under: Hedge Fund Regulation, Portable Alpha & Alpha/Beta SeparationPIMCO’s Chris Dialynas knows portable alpha. In fact, commentators such as author Peter Bernstein generally agree that PIMCO essentially invented portable alpha back in the 1980s in the form of the firm’s “StocksPLUS” and “BondsPLUS” products (see related posting).
Dialynas joined PIMCO way back in 1980 – surely before several of PIMCO’s current junior analysts were even born. So when he cautions the world about the movement he helped create, we’re probably best served by listening closely to what he has to say.
He is the author of the epilogue to the new book “Portable Alpha Theory and Practice” by Sabrina Callin (see related posting). The chapter is ominously titled “Portable Alpha – The Final Chapter: Schemes, Dreams, and Financial Imbalances: ‘There Must Be More Money’” and it amounts to something of a sanity check on the current state of portable alpha. The entire chapter can be downloaded here at AllAboutAlpha.com.
While cautious, Dialynas doesn’t actually question the underlying rationale behind alpha-beta separation or portable alpha itself. Instead, he expresses his concern that the techniques often used to create or isolate pure alpha (leverage and derivatives for example) have led to unacceptable risks to the financial system (think: Richard Bookstaber’s “Demons of Our Own Design” – see related posting).
Says Dialynas:
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