There's a new buzz in the asset management business around a concept called portable alpha. Put simply, this states that if a specialist fund manager can generate sustainable outperformance in any given market, it is quite legitimate - even advisable - for a fund to combine this alpha, or excess value, with a core strategic exposure to a quite unrelated market. So if an American pension fund makes a strategic asset allocation to, say, US equities and chooses the S&P500 index as the benchmark to measure its funds against, it does not therefore follow that it has to seek to beat this benchmark by appointing a manager who is clever at picking US stocks. It could do away with its poorly performing and expensive stock-pickers and pour money instead into various market-neutral, event-driven, long/short or tactical trading hedge funds.
"In a wired world how can the manager of a $20 billion pension fund predominantly invested in big liquid markets possibly expect to beat his auntie when she has access to all the investment banks' research and can trade on-line, especially when that fund manager has to go to a committee to make his decisions?" asks Ronald Layard-Liesching, head of research at Pareto Partners, a fund management boutique.