164. Hedgework: „Liquid Alternatives – Vielfalt alternativer Anlagestrategien für das institutionelle Portfolio“
- Christian Hoffmann
- Client Portfolio Manager
- Credit Suisse
FRANKFURT — Over the last five years, investor interest in alternative risk premia strategies has expanded rapidly. In this article, we describe our take on this investment category and outline some of the challenges which investors in risk premia strategies face. Christian Hoffmann, Client Portfolio Manager, Credit Suisse.
At Credit Suisse Asset Management, LLC (CSAM) we think of an alternative risk premium as the return an investor receives for accepting exposure to a rules-based risk-return algorithm, commonly referred to as a quantitative investment strategy. Alternative risk premia may be associated with strategies that seek to isolate non-traditional but tangible investment risks such as the risk that a corporate merger fails to close, as well as strategies that seek to exploit market inefficiencies or anomalies where the sources of risk are not as easily defined.
We view the growth of the alternative risk premia market as a natural consequence of the declining utility of traditional diversifiers, such as bonds, and growing investor frustration with reduced absolute returns, high fees, poor liquidity, inadequate transparency, and the challenge of manager selection of hedge fund investments. Alternative risk premia solutions have the potential to be promising. Thoughtful strategy specification, portfolio construction and risk management, along with cost efficient implementation, are critical to generating attractive returns in this space over the long run.
CSAM’s Quantitative Investments Strategies group (QIS) is one of the leading providers of liquid alternative and factor-based investing benchmarks and solutions. In 1999, QIS launched the CS Hedge Fund Index. With the introduction of its Credit Suisse Liquid Alternative Beta program in 2007, it was one of the pioneers involved in the development of rules-based, multi-asset alternative risk premia investing. QIS employs a rigorous, research-based investment process to manage both benchmark relative and absolute return investment strategies.
The framework we apply to managing our Multialternative Strategy portfolios seeks to manage risk across strategies and through regimes. It is the product of nearly two decades of experience benchmarking alternative investments and our ten-year history researching, designing, and trading alternative risk premia strategies.
Conceptually, alternative risk factors are different from macroeconomic factors, such as economic growth and credit, and alpha factors, such as country and industry selection. Despite the difference, they often share a common regime dependency in their performance profiles which should be thoroughly understood. Economic risks arise from the prospect of mismatches in the contemporaneous supply and demand for goods in the real economy. Because alternative risk premia are financial representations of economic risks in an investible form, not pure economic risks, it is always important to remember that they intrinsically carry financial risk.
Our strategy research focuses on identifying and cost-efficiently representing alternative risk premia. We examine microeconomic dynamics such as behavior and market structure, as well as links between economic and financial risk, all of which give rise to many alternative risk factors. This work enables us to map the performance characteristics of specific risk premia to an appropriate collection of market regimes. In doing so, our interest is in establishing robust, reliable relationships between strategy performance and specific market conditions, rather than forecasting regimes or timing markets.
Ultimately, apportioning alternative risk premia strategies across style categories is discretionary and because these categories provide limited value in demarcating risk characteristics, we believe that centering portfolio construction around style archetypes provides only superficial diversification. A more sensible approach recognizes if a strategy overlaps with other exposures that are of little value or with those that are truly new and diversifying. This is critical to achieve a successful investment outcome. This is what we call assessing strategy complementarity and it forms the cornerstone of our portfolio construction process.
Complementarity is best understood through a concise conceptualization of risk: risk is the possibility of being exposed to not having what you need when and where you need it. Optimal portfolio construction hinges on producing robust joint estimations of performance (what) for a target horizon (when) across each of the strategies (where) in the program. The main obstacle to achieving this result lies in the accurate estimation of strategy covariance terms which tend to vary through time. We seek to address this issue through the use of regime conditional estimations. By forecasting regime conditional strategy performance characteristics, our Multialternative Strategy framework attempts to promote the efficient allocation of risk while also attempting to avoid underperformance in any particular market regime.
Christian Hoffmann ist Client Portfolio Manager in der Quantitative Investment Strategies-Gruppe (QIS) der Credit Suisse und verfügt über umfangreiche Erfahrung in der Geschäftsentwicklung, im Kundenservice und in der Produktstrukturierung. Zuvor war er in der Beta Strategies Group von CSAM für die Einführung einer Vielzahl von Long-only- und Liquid-Alternatives-Produkte verantwortlich. Hoffman hat einen Masterabschluss der Fachhochschule Aschaffenburg mit den Schwerpunkten Finance & Business Administration.
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