Portable Alpha Theory and Practice : What Investors Really Need to Know

While portable alpha strategies have been around for over twenty years, the recent increase in investor risk tolerance and an associated focus on strategies with high return potential, combined with comfort in using derivatives, has contributed to a proliferation of portable alpha strategies and related services. Compared to traditional investment options, many portable alpha structures are considerably more complex—but they can also be very powerful and well worth the extra time and effort involved in understanding them. As an original innovator of the concept, PIMCO has been managing an increasing number of different portable alpha strategies for investors since 1986. And now, with Portable Alpha Theory and Practice, the PIMCO team shares their extensive experiences with you. Filled with in depth insights and expert guidance, this reliable resource puts portable alpha in perspective from the standpoint of investors. Opening with an informative overview of portable alpha and key related concepts, this book moves on to detail the theory behind this discipline and different ways it can be applied in real world situations. Chapter by chapter, you ll become familiar with the benefits and costs associated with portable alpha, as well as: The essential aspects of and approaches to its implementation Available global sources of (portable) alpha—from equities and fixed income to hedge funds The increasingly associated topic of liability driven investing (LDI) Derivatives based beta management The myths and realities surrounding alpha and beta Related considerations for asset allocation, risk budgeting, and benchmarking The crucial role of risk measurement and management In addition to the overriding themes regarding the link between return and risk, and the benefits of diversification presented throughout the book, there are some additional concepts that are also addressed—including the practice of borrowing to achieve higher returns and the role of leverage as it applies to your investment activities. The idea that portable alpha strategies may provide a solution that enables you to meet or exceed return targets is certainly appealing, as are the potentially powerful diversification benefits. But, as is the case with investing in general, it is important to first develop a comprehensive understanding of the many principles as well as the potential risks that underlie portable alpha strategies—and with this book as your guide, you ll quickly discover how.