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Impact Investing

IPE special report May 2018


Bring on the portable alpha

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The buzz words 'portable alpha' will be heard more as market neutral and other hedged fund strategies become more accepted. Dan Lass of Pareto Partners finds investors are already looking more and more at portable alpha strategies".
At SSGA, Kanesh Lakhani talks of the alpha or excess ratio generated by market neutral strategies being "ported onto another benchmark". He give the example of a German client, who wants to outperform on German equities. For an investor in a long short programme in US stocks, "what is relevant is that alpha is being created without exposure to the US market, so whether the market goes up or down is not relevant, so long as we have the spread between long and short positions.
That alpha can be ported onto a DAX futures contract to get market exposure." In this way, a German equity stream can be generated.
William Goodsall of First Quadrant, sees the concept as the next step after market neutral strategies, where market risk and return has been taken away.
"What some investors want to do is to restore the market risk and return, and they can do this by buying the relevant amount of indexed futures for a particular market. We call that an 'equitised market neutral' approach."
This, he says, gives the market return as expressed through the future plus the level of alpha from the market neutral process. "This really frees up the juices of the equity process.""

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