An increasing number of buy-siders are launching portable alpha strategies, which take excess returns from one fund and invest them in other investment vehicles. The trend is building as low interest rates drive investors to seek returns above core and core-plus strategies, according to Graham Allen, senior portfolio manager at Bradford & Marzec.
Los Angeles-based B&M plans to create its first portable alpha strategy, to be rolled out in the next six months. While B&M's executive committee has not yet decided on the specifics of the strategy, in general the asset manager would take the excess return generated by a fund run against an index such as the Lehman Brothers Aggregate Bond Index and invest a small portion in futures referenced to equities, with the majority invested in a short-duration cash fund. The firm hopes to roll out the strategy in the next six months to pension funds, corporate plans and foreign investors.
State Street Global Advisors recently launched its own portable alpha strategy. Jim Hopkins, principal, said the Boston-based manager's strategy involves buying swaps or futures referenced to the Standard and Poor's 500 Index. The firm then invests the excess return in a short duration bond fund.
