Adding Alpha Through Opportunistic Investment

In a recent article on, Anthony Brown of Mercer Investments suggests that “one way to add alpha [especially in the current environment] is through a more opportunistic approach to investing – seeking to take advantage of market volatility and dislocations.” He outlines two approaches to developing such an approach within a firm – internal and external. He notes that “the major roadblock to an internal approach is the governance burden” because trustee groups may take months to get from idea to investment, which “makes the implementation of an opportunistic investment approach extremely challenging.” He suggests that a focused investment sub-committee can help resolve the issue. The external approach – bringing on external investment managers – “should offer greater flexibility and responsiveness to market conditions and a streamlined implementation of new ideas,” Brown writes. He notes the external manager will be constrained to the degree of control afforded, so “giving managers more flexibility through broader investment mandates is one way to increase flexibility” and including “multi-asset strategies [that] have the latitude to allocate across asset classes and instruments” may also help. He points to hedge funds as an example, noting that “their investment mandates and structures tend to give them far more flexibility than traditional, long-only investments. Overall, Brown concludes that “an internal approach is best suited to take advantage of longer-horizon ideas and illiquid opportunities, while investment managers are best positioned to capitalize on short-term dislocations and more granular opportunities.”