Portable Alpha: Ask the Hard Questions

Man Group

Harry Moore

Research

16 Pages

Man Group examines why portable alpha structures that look efficient in normal markets can become fragile under stress. Its modelling suggests 30% unencumbered cash for monthly alpha and 40% for quarterly liquidity, while an extra 0.5% structuring fee can cost $150 million over 25 years.

Key Takeaways

Cash buffers matter: A 30% unencumbered buffer is suggested for monthly alpha and 40% for quarterly strategies after 2008 cash fell to 7%.
Fees compound heavily: On $100 million, an extra 0.5% structuring fee reduced hypothetical 25 year wealth by $150 million despite identical gross returns.
Rebalancing changes exposure: More frequent rebalancing hurt during 2008 as alpha gains were repeatedly shifted into falling equities; annual rebalancing avoided that drag.
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