Build-Buy-Lease: Three Approaches to Alpha Generation
Aug 3rd, 2008 | Filed under: CAPM / Alpha Theory, Guest PostsWe are pleased to present another commentary from the man who first coined the term “alpha-centric”, Angelo Calvello. Today, Calvello uses examples such as Man Investments and BGI to argue that there is more than one way for asset managers to become truly alpha-centric.
Special to AllAboutAlpha.com by: Angelo Calvello, Ph.D.
Investors, faced with funding shortfalls and stricter accounting regulations, are demanding innovative ways of achieving absolute returns. In the process, they are challenging the asset management industry to break down artificial barriers and constraints and consider solutions to problems we did not know existed a year or two ago.
In many cases, these investors are offering those of us who can provide demonstrable value the opportunity to transform ourselves from vendors into partners who share their vision. The common denominator is the concerted focus on finding and generating alpha. The defining challenge for the asset management industry is to create and adopt business models and mindsets that will allow us to succeed in this new alpha-centric world.
Multiple Sources
Institutional investors are already seeking investment solutions beyond narrow, single-source portable alpha strategies. They are exploring and implementing multi-alpha solutions that provide exposure to multiple asset classes at the portfolio level.
Because alpha is scarce, transitory and capacity-constrained, these solutions need to be structured flexibly so that alpha sources can be changed as they reach capacity or lose their edge. These solutions must also be structured to provide not just the desired return and volatility targets, but consistent positive returns while avoiding large losses.
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