the search for alpha forum

The Search for Alpha ForumStrategies for Achieving Superior Returns

March 21-22, 2007 ~ The Fairmont Hotel, San Francisco

Global market correlations have increased substantially, as have correlations among, between and within asset classes and strategies. This trend is expected to continue, presenting a new set of challenges for asset managers seeking to differentiate themselves as well as for investors pursuing both returns and downside risk protection. As a result this development may make it more necessary for investors to take greater risks than they might normally tolerate or, conversely, accept lower returns than they would otherwise.

Increased volatility, greater inflationary pressures and the consequent rise in interest rates present new opportunities as well as commensurate risks alongside the reality of greater correlations across asset classes and strategies that affect both traditional and alternative asset managers. And while there are probably strategies that can and will continue to provide non-correlated, higher returns, the related risks are considerably higher as well.

How can investors make informed decisions that take these trends into account while also ensuring they can identify strategies and managers likely to produce superior returns? The Search for Alpha Forum will delve deeply into this issue by examining the assorted ways asset managers are approaching their markets and helping investors meet their objectives. In addition, a variety of interactive sessions including panel discussions and peer-led breakout groups will investigate a variety of newer, riskier strategies in an attempt to distinguish those that stand a good chance of providing higher returns on a sustained basis, but also ones where risk management tools can be applied to provide sufficient comfort to investors. An assortment of presentations and guest lecturers involving both alternative and traditional investment ideas and approaches will provide investors with a variety of means to produce alpha and manage associated risks—the types of investment strategies managers are developing in order to serve their increasingly sophisticated clients in a more complex environment.

Accordingly, we have assembled an Advisory Board of leading investors to suggest topics for consideration and to help steer the agenda so as to deliver the substance and networking opportunities that will allow our delegates to achieve superior returns from their investment decisions.

__________________________The Search for Alpha Forum

Strategies for Achieving Superior ReturnsMarch 21-22, 2007 ~ Fairmont Hotel, San Francisco

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Advisory Board

Ana Maria SencoviciVice President, Retirement Plan InvestmentsAmerican Express Company

Kevin Britton, CFADirector of Absolute ReturnCornell University

Fred Flores, CFAAssociate Director, Public InvestmentsThe William & Flora Hewlett Foundation

Stuart OdellDirector of Retirement InvestmentsIntel Corporation

John JenksChief Investment OfficerJames Irvine Foundation

Allan S. BufferdTreasurer EmeritusMassachusetts Institute of Technology

Luis AlvarezChief Investment OfficerPuerto Rico Government Employees and Judiciary Retirement Systems Administration

Timothy Barrett, CFAExecutive Director and Chief Investment OfficerSan Bernardino County Employees’ Retirement

Gary BruebakerChief Investment OfficerWashington State Investment Board

Jeff KleinDeputy Chief Investment Officer, PensionsWeyerhaeuser

Sponsoring Organizations (to date)

Credit SuisseEIM Management (USA) Inc.FTSE Americas, IncJanusINTECH Institutional Asset ManagementMorgan Stanley Investment ManagementNorthern Trust Global InvestmentsOppenheimer CapitalQuantitative Management Associates LLCThe Bank of New York Trust Company of the West

Wednesday, March 21



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8:00-8:40am Registration and Continental BreakfastLoggia and Cirque Room

8:40-8:45am WelcomePavilion Room

Forum Moderator:Charles B. KrusenChief Investment OfficerKrusen Family Partnership

8:45-9:25am Panel Session: A Wealth of OpportunitiesPavilion Room

Moderator:John Powers Chief Executive OfficerStanford Management Company

Panelists:James A. WilcoxProfessor, Haas School of BusinessUniversity of California, Berkeley

Edward E. LeamerProfessor/Chauncey J. Medberry Chair in Management,

Anderson Schoolof ManagementUniversity of California, Los AngelesDirectorUCLA Anderson Forecast

Rob WeigandProfessor of Finance and Brenneman Professor of Business

StrategyWashburn University, School of Business

What are the macroeconomic, sociopolitical and other factors that will make or break companies, industries, indeed entire markets, over the next several years? Which industries will excel? Does the Asian region, with 60 percent of the world’s population and 20 percent of global GDP, represent the next big source of obtainable and largely untapped beta? If so, how much should investors be allocating to this region? In sum, where will investors and their managers find the best opportunities and the greatest risks?

9:25-10:05am Panel Session: The Search for AlphaPavilion Room



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Moderator:Allan S. BufferdTreasurer EmeritusMassachusetts Institute of Technology

Panelists:David RussChief Investment OfficerDartmouth College

Greg TournantManaging DirectorOppenheimer Capital

Peter SteinVice President and Chief Investment OfficerUniversity of Chicago

Alpha can be defined as the difference in return between the results of active management and an appropriate benchmark for a manager. In the expression "Search for Alpha", there is an implicit expectation that alpha is out there—though difficult to find, otherwise we would not have to "search" for it. Assuming the search is successful, and perhaps coupled with a requirement for sustainability, one could adopt the "portable alpha" concept. This session will explore these topics: is "alpha" correctly defined and to what extent or not are there risks in portability.

10:05-10:25am Coffee BreakLoggia

10:25-10:45am Presentation: The Impact of Liability-Driven Investing on the Markets,

and thereby on the Search for AlphaPavilion Room

Presented by:Michael PeskinManaging DirectorMorgan Stanley Investment Management

As corporate plans swiftly shift their focus from beta to alpha, public plans will likely follow with a significant lag. This impending shift will put technical pressure on the yield curve, resulting in more intense competition for alpha and a more intensified focus on risk management.

10:45-11:05am Presentation: 5 Myths in Long-Short InvestingPavilion Room



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Presented byMichael MaquetManaging DirectorQuantitative Management Associates LLC

Acceptance of the theory behind portfolio extension strategies has been widespread. Now it is time to look beyond the theory and start to address some of the more specific practical concerns that can arise around implementation. This discussion will begin by addressing some of the common misconceptions surrounding implementation of 130/30-type strategies.

11:05-11:25am Presentation: Evolving Beyond a Long-Only World Pavilion Room

Presented by:Allan TooleDirector, Alpha SeriesTrust Company of the West

Today’s lower return environment has caused many to seek higher returns through alternative investments. While current offerings in the alternative space can provide diversification and the potential for higher return, they must be evaluated with respect to cost and transparency. Funds have approached their long only managers to understand how their skill set can be adapted to evolving needs for lower volatility and higher absolute returns. This session will examine how one firm has responded and the implications for investors.

11:25-12:05pm Panel Session: How Much Risk are Funds Taking on in their Search for

Higher Returns?Pavilion Room

Panelists:Karlheinz MuhrManaging Director, Head of VOLARIS Volatility Management

StrategiesCredit Suisse

Jay LovePrincipal and Senior ConsultantMercer Investment Consulting, Inc.

Mark BaumgartnerExecutive DirectorMorgan Stanley Investment Management



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Chriss StreetTreasurerOrange County Employees' Retirement System

Michael MaquetManaging DirectorQuantitative Management Associates LLC

After all these years searching for alpha, and in many cases moving dramatically up the risk ladder, do most funds truly understand the risks – all the types of risks – they are facing anymore? Primarily, how are investors dealing with the issue of leverage, one of the most prevalent alpha-adds offered by managers? Leverage, like anything else, can be misused and many institutions are adding another layer of it at the total portfolio level, possibly without fully understanding it. This session will explore your fund’s overall exposures to the full array of risks, including liquidity, time premiums, and counter-party but most of all, leverage.

12:05-12:25pm Presentation: Enhanced IndexingPavilion Room

Presented by:Jeremy M. Baskin, CFAGlobal Head of Quantitative Active & Enhanced Index

StrategiesNorthern Trust Global Investments

There are several notable and interrelated trends in the current marketplace, including growing popularity of risk budgeting frameworks, willingness to pursue higher levels of alpha, separating alpha from beta, relaxing the long-only constraint and increasing interest in alternatively weighted benchmarks. All of these trends focused on alpha generation have interesting and potentially confusing implications for how we think about and evaluate enhanced indexing strategies. This session will demonstrate how to make best use of enhanced indexing strategies in the context of these trends.

12:25-12:45pm Presentation: Using Customized Fund of Hedge Fund Structures to

Augment Traditional Asset AllocationsPavilion Room

Presented by:William BijesseChief Investment OfficerEIM Management (USA) Inc.

Stephen Philp



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Managing DirectorEIM Management (USA) Inc.

This presentation will look at two case studies that demonstrate why the use of an equity or a bond substitute may be a better way to implement traditional equity and fixed income allocation strategies.

12:45-2:15pm Lunch with Guest Presentation: A Case Study on Using 130/30 Strategies

Fountain Room

Presented by:Florian WeberSenior AssociateWilshire Associates

2:15-3:15pmPeer Workshops: Endowments/Foundations; Corporate Plans; Public

Funds

Investors will be assigned to a workshop based upon their affiliation as representing an endowment/foundation, corporate or public fund. Each workshop will be facilitated by a leading investor from their respective community.

Corporate Plans: Financial Ramifications of the Current Pension LegislationGarden Room

Facilitator:Carl HessPractice Director, AmericasWatson Wyatt Investment Consulting

After several years’ debate and minutes before the members’ summer break, the House delivered a 900-page pension bill which is being hotly contested. Will this pension bill force employers who have fallen behind in their defined benefit pension payments to catch up within seven years while closing underfunding loopholes? Or is the new bill designed primarily to protect the government from increased financial exposure to underfunded plans? Already the bill is perceived as promoting pension alternatives, such as 401(k) plans, and affording financial firms greater latitude in steering investors toward higher-earning savings programs. Does this bill’s delivery “represent the most sweeping changes to America’s pension laws in more than 30 years,” as stated by Majority Leader John Boehner, or does the bill do too little to solve the problems facing many US firms while favoring some industries over others?



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Public Funds: The Next Sources of AlphaGreen Room

Facilitator:William J. Coaker, II, CFA, CFP, CIMA, MBASenior Investment OfficerSan Francisco City & County Employees Retirement

Systems

For the seven year period from 2000 to 2006, the S&P 500 returned just 1.1% annually. Comparatively, a wide array of assets - including large and small value, international stocks, emerging market stocks and bonds, high yield bonds, private equity, and some hedge funds - earned good or very good returns. But now those assets are arguably fully discovered; therefore, the key question is what asset classes will do well in the next time series. Workshop participants will discuss prospective returns for the S&P 500 v. large value v. large growth, small stocks v. large stocks, small value v. small growth, U.S. v. international stocks, high grade v. high yield bonds, and public v. private equity.

Endowments/Foundations: Defining, Finding and Using AlphaFrench Room

Facilitator:Allan S. BufferdTreasurer EmeritusMassachusetts Institute of Technology

Investors’ search for alpha is not, per se, the use of portable alpha. Neither is alpha to be found “lying around”. In addition, some of the most-discussed sources of it include leverage and its pursuit sometimes has managers straying from their directive (eg, giving investors exposure to emerging markets when there’s an EAFE mandate, etc). This workshop will provide participants with the opportunity to express their views on the general search for alpha challenge.

3:15-3:45pmCoffee BreakLoggia

3:45-4:05pmPresentation: Spanning the Alpha Space: Advantage – Quantitative

Investment TechnologyPavilion Room

Presented by:Joseph Cherian, Ph.D.



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Managing Director and Head of the Quantitative Strategies Group

Credit Suisse

The tension between ‘qualitative’ and ‘quantitative’ philosophies has resulted in two distinct styles of investing: one based on fundamental analysis, which bets on a few securities by relying on tedious, indepth analysis to generate alpha; and the other based on quantitative techniques, which uses investment science and discipline to source and spread one's bets across multiple, low-correlated sources of alpha. The ability to unbundle excess returns into their alpha and beta components has served to improve investors' pursuit of alpha with analytical efficiency and precision, coupled with an increased focus on risk budgeting and control. Furthermore, judicious use of the active risk budget and capital provides for vastly improved portfolio efficiencies. However, buyer beware of the "no free lunch" principle and the "virtual alpha" syndrome.

4:05-4:25pmPresentation: Sourcing, Extracting and Applying AlphaPavilion Room

Presented by:Greg TournantManaging DirectorOppenheimer Capital

The need to source and extract portfolio alpha has become a paramount concern for investors seeking to further enhance their returns over market benchmarks. In response, investment managers developed strategies that have generally been unable to produce the consistent source of alpha that most investors seek. The data suggest that the overall ability of money managers to deliver on this objective has not been all that impressive: the average annualized return of absolute return strategies has been only 7.6% over the past five years. This session will explore how a structured alpha approach that relies neither on the direction of the market nor on the level of market volatility can likely benefit a portfolio's returns.

4:25-5:10pmPanel Session: How Organizational Issues Impact the Search for Alpha

Pavilion Room

Panelists:Stephen PhilpManaging DirectorEIM Management (USA) Inc.

John JenksChief Investment OfficerJames Irvine Foundation



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Jerry DavisChairman of the Board, Chief Executive Officer and Civil Service CommissionerNew Orleans Employees Retirement System

Sometimes organizational issues such as staffing and governance models dictate which alpha sources you can pursue. What options do you have when you don’t have the resources need to do an adequate “look-through”? How can the multimanager model be used to best effect by those with constrained resources?

5:10-5:40pmPresentation: CalPERS’ Alpha Generation Story: A Case StudyPavilion Room

Presented by:Eric Baggesen Senior Portfolio Manager, Global Equities CalPERS Investment Office

This session will provide Forum attendees with insight into CalPERS’ alpha generation strategies: Where returns have come from historically and the avenues that are being pursued currently in terms of adding value. How has CalPERS made best use of its absolute return programs as an engine for its portable alpha program? What are the fund’s new initiatives in terms of generating returns and added value in lots of small ways, such as internalizing indexing and beta management, transition management, and the securities lending program. Above all, what techniques and strategies can investors from funds of all sizes take away and apply to best effect?

6:00pm Departure for California Culinary Academy

According to a recent article in The New York Times, team cooking is the hottest thing going when it comes to team-building and networking activities. Meanwhile, San Francisco is world-renowned for its culinary achievements and the California Culinary Academy is where many of those star chefs get their world-class education. Therefore, we invite you to enjoy a hands-on cooking experience, preparing and indulging in a meal made from the finest ingredients available. Forum delegates will partake in a hands-on cooking evening while mingling, drinking cocktails and eating hors d’oeuvres prepared by the academy’s chefs. You then dine in the elegant Carême Room with a 40-foot tall barrel-vaulted ceiling, filtered skylights and Renaissance architecture. Or if you don’t want to participate, you can just sit back and watch the “chefs” at work while enjoying the chef’s culinary preparations throughout the evening.

10:00pm Return to Fairmont Hotel



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Thursday, March 22

8:00-9:00am Continental Breakfast and Workshop: Accessing Global REITS for

Diversification and OutperformanceFrench Room

Workshop Leader:Laurie PosnerDirector, FTSE Americas WestFTSE Americas, Inc

This session will provide insight into how to utilize REITs to improve returns while mitigating risk in a diversified portfolio. REITs have consistently outperformed the S&P 500, the Dow Jones, the Russell 2000 and the Nasdaq averages for five, ten, fifteen and twenty years. Global REITs delivered close to 30% in 2006. Topics to be covered include: Real estate as an asset class: The evolution of REITs; Real estate investments through listed securities; and Improving risk-adjusted returns through global real estate

9:00-9:20am Presentation: Seek and You Shall Find – Innovative Strategies for

Generating AlphaPavilion Room

Presented by:James BarrettManaging Director, Institutional Asset ManagementBNY Asset Management

Institutional investors are facing the increasing challenges of meeting future obligations, funding liabilities and achieving overall portfolio objectives. This has led to a determined search for alpha, but many institutional investors have reported mixed results. This session will focus on new and innovative ways that firms are generating alpha for their clients.

9:20-10:05am Panel Session: Building the “Perfect” Portable Alpha Model: Making

Money from Both Alpha and BetaPavilion Room

Panelists:James BarrettManaging Director, Institutional Asset ManagementBNY Asset Management

Timothy Barrett, CFAExecutive Director and Chief Investment Officer



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San Bernardino County Employees’ Retirement

Allan TooleDirector, Alpha SeriesTrust Company of the West

Increasingly and in pretty much a return to their origins in some ways, investors are realizing there are low-cost gains to be made from beta as they hurtle forward in their search for alpha. These leading practitioners will discuss their experience with building the perfect portable alpha model, one that makes money from both alpha and beta.

10:05-10:25am Presentation: Why All Growth is Not Created EqualPavilion Room

Presented by:Stephanie PierceSenior Vice President & Managing Director, Client Portfolio

ManagementJanusINTECH Institutional Asset Management

Growth alone does not lead to value creation; therefore, executives must consider the cost of that growth. Failing to do so will most likely lead to value destruction. Because investment capital drives growth and has an underlying costs, companies should seek to maximize the return on shareholder capital and the return on each incremental dollar of cash flow generated. This session will provide key insights into how the Return on Investment Capital (ROIC) metric can help identify a company’s sustainable, long-term value creation potential, and the benefits this can have for investors.

10:25-10:45am Coffee BreakLoggia

10:45-11:30am Panel Session: Managing the Cycles in Alternative Investments

Pavilion Room

Moderator:Jeffry R. Haber, PhD, CPAControllerThe Commonwealth Fund

Panelists:Kevin O'Donnell, CFA Member, Investments TeamCalifornia State Automobile Association



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Jeff KleinDeputy Chief Investment Officer, PensionsWeyerhaeuser

This session will provide a macro, top-down view of the cycles that persist in the alternative markets, particularly private equity and hedge funds, and the impact of those cycles on portfolios. Additionally, given investors’ high level of interest in commodities, we will address the unique characteristics of the cycles for those assets and discuss the opportunities they continue to present. Finally, the speakers will address the central issue of whether current valuations in these markets are sustainable.

11:30-12:10pm Panel Session: What Comes Next?Pavilion Room

Moderator:Allan S. BufferdTreasurer EmeritusMassachusetts Institute of Technology

Panelists:Stephanie PierceSenior Vice President & Managing Director, Client Portfolio

ManagementJanusINTECH Institutional Asset Management

Alain CubelesSenior Quantitative StrategistNorthern Trust Global Investments

Luis Alvarez Chief Investment OfficerPuerto Rico Government Employees & Judiciary

Retirement Systems Administration

Over the past day and a half we have strived to identify the strategies and assets that offer investors higher risk-adjusted returns. Now it’s time to turn to the future and identify which market environments are conducive to these solutions and which not. What happens when the market dynamics shift, possibly when volatility declines? What other factors will impact the search for alpha. Will hedge funds continue to be one of the primary sources of alpha? What if the primary premises of portable alpha and other cutting-edge strategies turn out to be flawed or unsustainable? Then what comes next?

12:10-12:40pm Guest Presentation: Enhancing What You Have Already: Making Money from Every Asset



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Pavilion Room

Presented by:Timothy D’ArcyManaging Director, Cooperative Research ServicesASTEC Consulting Group, Inc.

Why not make a penny on every stock your fund holds through securities lending? Too easy? Why isn’t everyone doing it? What are the risks? How can you enhance the benefits of the assets you already have while you continue your search for higher returns elsewhere?

12:40-2:00pm Lunch with Guest Presentation: Emphasizing Low-Correlated Assets

that Still Meet Return ObjectivesFountain Room

Presented by:William J. Coaker, II, CFA, CFP, CIMA, MBASenior Investment OfficerSan Francisco City & County Employees Retirement

Systems

Combining assets with consistently high correlations to each other does little to reduce risk. The S&P 500 and large growth have had a long-term correlation of .96, and over rolling three-year periods, their correlations have been .90 or higher 100 percent of the time. The presenter believes a better use of an investor's risk budget is to emphasize assets with low correlations that still meet return objectives. We'll explore why international stocks, emerging markets, real estate, natural resources, global bonds, and hedge funds should be utilized more than is typical practice.

2:00pm Closing Statements:Allan S. BufferdTreasurer EmeritusMassachusetts Institute of Technology

Forum concludes



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the search for alpha forum

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