Reuters – Allstate Corp.’s $125 billion investment fund is joining a growing list of pension funds that are investing in so-called portable alpha strategies in a move to boost overall returns, theinsurance giant’s chief investment strategist said this week.
As stock and bond returns remain low, such strategies are being hailed by proponents as better able to generate returns that outperform the overall market as measured by benchmarks such as the Standard & Poor’s 500 index, without increasing risk.
“Active managers have to demonstrate that they can beat the index,” said Mark Rosenberg, chairman and chief executive of SSARIS Advisors LLC, a $1 billion-plus hedge fund manager and unit of State Street Corp. (STT.N: Quote, Profile, Research). “Many more managers will take advantage of hedge fund techniques. That is the future.”
Portable alpha strategies involve selling “beta,” or market-tracking investments, and replacing them with options on a particular index, such as the S&P 500. This is a cheaper means to achieve market-performing returns than holding stock or bonds.
Sale proceeds are then reinvested in “alpha,” or excess return, investments such as hedge funds, or a basket of hedge funds through a “fund of hedge funds” manager. Alternatively, a fund can structure its own absolute return strategy by purchasing derivatives in-house.
