Flirting with Models Jason Josephiac - Portable Alpha and Risk Mitigating Strategies (S6E6)
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Jun 5, 2023 A deep dive into how institutional investors build portfolios, from the pitfalls of liability-driven investing to portable alpha’s real-world challenges. Jason Josephiac also explores Meketa’s risk-management playbook, including long volatility, managed futures, and what truly counts as a diversifier.
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Structure Portable Alpha With A Separate Beta Sleeve
- Separate alpha and beta operationally in portable alpha programs and source beta via futures/swaps or a dedicated beta provider.
- Maintain TLC: transparency, liquidity, and control to manage rebalancing and margin needs.
Size Variation Margins For Tail Events
- Plan for large variation margin buffers when using futures/swaps for beta overlays; use historical extreme drawdowns to size buffers.
- Ensure alpha managers' liquidity and correlation to beta drawdowns so margins aren't funded by illiquid assets.
Do The Math On Alpha Sleeve Opportunity Cost
- Compare the capital efficiency of portable alpha versus long-only: account for margin that reduces capital available to alpha managers.
- Compute required alpha uplift (e.g., alpha sleeve must be ~1.43x better if 30% capital is held as margin).