RT Journal Article
SR Electronic
T1 Investing Contingent Capital
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 80
OP 87
DO 10.3905/jpm.2004.442625
VO 30
IS 5
A1 Ronald Layard-Liesching
YR 2004
UL https://pm-research.com/content/30/5/80.abstract
AB Passive investment of capital will not serve to meet return goals for many pension funds, a reality that is fueling huge interest in new alpha activities. Alpha strategies appear to offer incremental return with the same capital invested, but an alpha strategy can add value only because fund capital is at risk, so alpha return should be measured relative to the contingent capital placed at risk in order to obtain the return. This contingent capital framework can also be used to evaluate new alternatives such as insurance or credit derivatives. Based on extreme value theory, it provides an improved framework for efficient use of the fund's total risk budget.