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Reaping the Rewards of Modern Risk Profiling
Empowering Alpha Centauri
Alpha Centauri, a Hamburg-based investment boutique started investing in market-neutral, single-factor strategies, including earnings momentum, balance sheet quality and dividends in 2009. After three years of outperformance, with investments topping €300 million, the euro crisis began to severely impact its returns. Alpha selected FIS® Investment Risk Manager (formerly APT), the arbitrage pricing theory modeling solution, to help develop a research and portfolio construction infrastructure to address known and unknown risk issues.
At a Glance
OBJECTIVEDevelop a new series of European factor indices and focused risk solutions for asset managers.
RESULTSThe partnership with FIS allowed Alpha Centauri to create, test and launch new factor index products in collaboration with STOXX, a leading provider of equity indices. These new investment strategies allow the firm to extend its existing research and to compare performance and risk characteristics with the live track of existing strategies.
With an ex ante tracking error of only 3 percent, the excess return was 2.75 percent on average in the first 9 months since inception compared to the benchmark (STOXX Europe 600).
With FIS Investment Risk Manager, we discovered some surprising sources of unintended risk in our original strategies and in external factor indices. After extensive research and adjustments, we were able to deal with most of the main risk issues in factor investing and liquid alternative risk premia such as unpaid systematic risk, asymmetric payoff profiles and factor alignment problems. With Alpha Centauri team’s vision and due diligence coupled with FIS’ risk technology and partnership, we have implemented innovative strategies that are growing our business.”
Thanks to the partnership with FIS, Alpha Centauri is now in a stronger position than ever to not only seize opportunities for factor investing but also to overcome today’s volatile markets and changing regulations.