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 turned to FIS and its Arbitrage Pricing Theory (APT) modeling solution for help developing a research and portfolio construction infrastructure to address known and unknown risk issues.
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 solution APT, 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.