Costs Versus Returns

Wed Jun 1, 2005


 


Having discussed the practicalities of setting up a portable alpha programme, what costs is one likely to incur along the way?

Niki Natarajan, InvestHedge
 
The next big question on every pension fund's mind will be how much does all of this cost?

Elise Hubsher, Northwater Capital
 
Cost is dependent upon how alpha is isolated and the beta destination for porting. The more liquid betas are less costly than narrowly defined or customised betas.

For example, at this point in time, investors can receive S&P 500 return through a swap at around LIBOR +5 basis points, a cheap source of beta indeed. While swaps on more customised equity indices or hedge funds themselves might be substantially higher.

"What's the cost of all this today? Start with five basis points for the cost of the swap and five for managing the swap"

Government bonds and mortgages have even traded at...

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