Alpha transfer: Optimising the benefit of active management

A R Harmstone ()
Additional contact information
A R Harmstone: Lehman Brothers Inc.

Journal of Asset Management, 2000, vol. 1, issue 2, No 7, 196-206

Abstract: Abstract This paper shows that it is possible to separate investment policy, the benchmark asset class or asset classes an investor wishes to invest in, from the ‘investment management structure or how the assets are divided amongst investment managers’ and the asset classes in which investment is actually made. This paper begins by showing that active management appears to work in some markets and not to work in others. Once this is established, the paper shows how an asset manager or client will be better off investing investment managers with expertise in those asset classes where active management works and then transferring it to those asset classes to which exposure is desired. The paper will construct an ‘alpha efficient frontier’ that allows an investor to choose among feasible ‘optimal’ expected alpha and tracking error combinations. In this way, the investor creates the ‘optimal’ investment structure. It will do an analysis of the performance of certain selected combinations of this efficient frontier. The paper shows how, using derivatives, the desired investment policy can be achieved independently of the optimal investment structure.

Keywords: alpha transfer; portable alpha; investment management structure; active management vs. passive management; derivatives or futures overlay (search for similar items in EconPapers)
Date: 2000
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://link.springer.com/10.1057/palgrave.jam.2240014 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:assmgt:v:1:y:2000:i:2:d:10.1057_palgrave.jam.2240014

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/41260

DOI: 10.1057/palgrave.jam.2240014

Access Statistics for this article

Journal of Asset Management is currently edited by Marielle de Jong and Dan diBartolomeo

More articles in Journal of Asset Management from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().