New “Portable Alpha” Fund
| Oct 12th, 2006 | Filed under: Portable Alpha & Alpha/Beta Separation | By: Alpha Male |
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Here’s an interesting example of a genetically modified hedge fund that aims to deliver pure alpha. Armajaro Asset Management, a UK-based firm with significant business in Africa, recently launched a synthetic market neutral equity fund that the firm calls the purest representation of the portable alpha concept.
As we have illustrated on this blog, a dynamically adjusted market-hedge can neutralize the beta exposure in a typical long-only fund. Interestingly, Armajaro starts with a long/short fund that presumably would have a lower beta component already. In fact, if the underlying fund were variable bias (sometimes long and sometimes short) then the market hedge would also have to be long or short to neutralize the exposure.
Alpha Male once cooked up a synthetic hedge fund that comprised of a position in an underlying long-only fund, a position in an underlying short-biased fund, and a position in an ETF (long or short). The ETF was dynamically adjusted to provide clients with a static pre-defined beta exposure. Armajaro seems to have taken a similar tack. According to the firm:
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