Alternative Risk Premia

Alternative Risk Premia

Alternative Risk Premia Investing

Over the past few years, alternative risk premia (“ARP”) investing has grown from a relatively niche investing style into a significant investment industry with a broad range of participants, as investors have become increasingly aware of the need to diversify away from traditional risk premia. Many of the world’s most sophisticated and cost-sensitive investors have implemented allocations to ARP portfolios.  

ARP portfolios offer a number of benefits versus existing alternative investment offerings:

  • Capture liquid, uncorrelated sources of return
  • Simple, logical and well documented strategies
  • Cost efficient implementation with maximum liquidity
  • Daily position-level transparency, based on the services provided by LumRisk, a LumX Group subsidiary 

ARP strategies have been developed to target many different market risks and sources of returns whose behaviours differ from those of traditional portfolio exposures. A well-constructed portfolio of ARP may strongly diversify traditional portfolio holdings. The breadth of the available ARP universe also allows the portfolio itself to be effectively diversified, helping to manage its risk.

LumX has developed specialized expertise and unique methods which allow it to effectively use liquid, low-cost ARP to enhance traditional and alternative investment portfolios, or to actively manage pure ARP portfolios for institutional investors as a complement to their existing hedge fund allocation. We believe that ARP provide an effective method of obtaining exposure to many of the beta’s that underpin hedge fund returns, and represent a cost-effective method with which to implement both passive and active investment programs, either as a stand-alone portfolio, or as a component designed to enhance the risk-return characteristics of broader hedge fund or cross-asset portfolios.

As it does with hedge funds, LumX applies a structured and methodical investment approach to risk premia programs to ensure that the dynamics of individual risk premia are thoroughly understood from the point of view of their economic rationale, strategy implementation and empirical behavior. Our extensive risk transparency infrastructure adds significant value to both passive and active ARP programs by providing detailed aggregated risk information that improves the effectiveness of monitoring and provides important information for portfolio management.