GLOBAL - Consultants have been left behind in the move by large pension plans to portable alpha strategies, said Bruce Brittain, executive vice of president product management at PIMCO.
Brittain said consultants are now being forced to get to grips with the working reality of fixed income derivatives. He explained large pension plans with sufficient resources had made a move from using portable alpha merely as a product to creating a complete strategy based on identification of pure alpha.
"Consultants are being forced to adapt to the reality the bigger plans have created," he said, and added they were having to understand the inner workings of fixed income derivatives which are more complex than the equity derivatives that consultants were generally more accustomed to.
The shift away from the traditional return focus to alpha generation capabilities was driven by the hedge fund phenomenon and a vision of pure alpha, according to PIMCO.
James Moore, senior vice president and product manager for long duration and pension, said that evolution developed quickly, but warned of the dangers of such a strategy being placed in the wrong hands.
"It's a little like handing a scalpel to a young child. In the hands of a surgeon it can work miracles, but given to the wrong person it results in disaster," he explained.
Brittain also spoke of the inherent risks embedded within portable alpha strategies. Alpha scarcity and adding fees could all prove to work against the investor.
However, he noted that in an environment where alpha runs dry, managers or hedge funds with robust platforms and processes would still survive.
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