Desperately seeking alpha

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Desperately seeking alpha

• A Workshop in Two Parts

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Mission of the Workshop

• Undo 150 years of mis-marketing of fund manager
  skill (alpha generation)
• Help trustees and solutions providers develop
  more realistic expectations of
• What can be achieved in the active management
  space
• What cannot, given traditional constraints
• How the odds can be improved

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Our guarantee to you

• If you still dont understand the critical issues
  by the end of this conference.
• We will dedicate whatever time necessary to help
  you get that understanding
• Make sure to let us know
• FILL IN THE QUESTIONNAIRE!

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Our panel of experts

• Research / academic
• David Bradfield
• Daniel Polakow
• Heidi Raubenheimer
• Nerina Visser

• Practitioner
• Helena Conradie
• Grant Irvine-Smith
• Robert MacDonald
• Lynn van Coller

Multimanager / solutions provider James
Barber Anne Cabot-Alletzhauser
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Programme

• Part I
• What is alpha?
• Alpha in the global context why it exists more
  in some countries than others
• Alpha in SA Have we got what it takes?
• Why its so difficult to extract The Constraint
  Issue

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Programme

• Part II
• How global investors have improved the odds
• New opportunities for enhancing alpha in SA
• Just how far can we push the quest for alpha?
• or..be careful what you wish for

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What do we mean by.?

• That segment of return attributable to the
  markets movement or the benchmarks movement
• Provides unconditional return the higher the
  risk or beta to the market, the higher the return

• That segment of return that is uncorrelated to
  market return and is in excess of the market or
  benchmark return
• Conditional on
• Market efficiency
• Manager skill

Alpha

• Beta

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What do we mean by.?

• Alpha
• Trustees, solutions providers need to risk budget
  a given alpha strategy
• This is the frosting on the cake

• Beta
• This is the vital component of any policy or
  strategic benchmark
• Investors need to determine the optimal beta mix
  (asset allocation) to meet funding requirements

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The Future of Active ManagementBarton Waring
(CFA Proceedings 2003

• The best managers of the future will observe
  these process ideals
• A focus on generating pure alpha (not hiding
  behind beta)
• Wide breadth
• Aggressive management of transaction costs
• Optimised portfolio construction
• Aggressive reduction of uncompensated risks
• Formal risk budgets
• Move away from the long only constraint

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Most of us like to focus on these exciting
developments

• The best managers of the future will observe
  these process ideals
• A focus on generating pure alpha (not hiding
  behind beta)
• Wide breadth
• Aggressive management of transaction costs
• Optimised portfolio construction
• Aggressive reduction of uncompensated risks
• Formal risk budgets
• Move away from the long only constraint

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Without realising they are meaningless concepts
without the supporting structure of the full
process

• The best managers of the future will observe
  these process ideals
• A focus on generating pure alpha (not hiding
  behind beta)
• Wide breadth
• Aggressive management of transaction costs
• Optimised portfolio construction
• Aggressive reduction of uncompensated risks
• Formal risk budgets
• Move away from the long only constraint