Although the mainstream financial media now routinely ridicules “exotic” investment strategies such as portable alpha, institutional interest in managing alpha and beta separately has not gone away.  As we have reported on these pages, portable alpha strategies performed poorly in 2008 not because there was anything wrong with the concept, but because the supposedly-uncorrelated alpha sources happened to keel over and die along with the market.  As a result, portable alpha investors lost money on the beta side and the alpha side.

Sophisticated investors are well aware that the real culprit was the questionable uncorrelation of the funds of funds often used as an alpha source – not portable alpha per se.  An interesting paper by Rob Brown of Benchmark Plus Management makes the case that portable alpha will experience a “rebirth” and will eventually become “dominant” and “commonplace”.  (available here in P&I’s white paper library)

Writes Brown: More…