In traditional investing returns are accurate, largely marked to market. In alternative investments returns for many strategies are not marked to market daily. ActiveAllocator algorithms correct data for stale pricing.
What We Do
Frustrated with the sub-par tools currently available to financial advisors, our team created ActiveAllocator.com, the world’s first portal that seamlessly integrates traditional, illiquid and alternative investments within portfolios.
The ActiveAllocator Difference
- Brings institutional quality asset allocation methods to financial advisors who serve mainstream investors.
- Built around cutting edge algorithms and software developed by analysts who have been advisors themselves with decades of main and wall street experience.
- Far beyond anything offered by emerging digital financial advice platforms or robo advice.
- Assists financial advisors to develop and implement sound investment policies to deploy client capital sensibly.
- Augments financial advisor and client interactions by bringing in analytics driven, fact based, product agnostic decision making.
We are the Rational Alternative
Whilst recognizing comfort in past performance we do not place all our faith in it. Experience, in itself, is not good enough for us. We do not drive all the way home by looking at the rear view mirror. Neither, we hope, would you.
We believe that a fact-based approach to investment allocation decisions is often missing in the alternative investments space. We are in a sense the “Rational Alternative“.
Many of you who invest in alternative investments have a difficult task, given:
- Lack of transparency in investing given asymmetric information
- Differentiating between results that come from active skills or passive market exposure
- Properly integrating illiquid and liquid investments together
- Absence of analytic tools to arrive at fact based decisions
- Stale prices and subjective asset valuation
- Constrained access to excellent fund managers
These challenges are compounded when it comes to investing across a broad range of strategies, asset types, managers, styles and instruments that constitute the alternative investments universe.
Choices, Choices, Choices.
Especially Well-suited for Alternative Investments, ActiveAllocator Accounts for:
In traditional investing volatility is an appropriate risk measure as returns data is bell shaped/normally distributed. This is not so within alternative investing where volatility may misrepresent true risk. ActiveAllocator algorithms correct data to arrive at better measures of underlying risk. For instance, it incorporates extreme but rare downside events.
In traditional investing typically assets are highly liquid as they are traded continuously in markets. This is not so in alternative investments where different levels of liquidity restrict exit options. ActiveAllocator algorithms make an illiquidity premium adjustment.
In traditional investing, typically assets are traded in efficient public markets whereas alternative investments are often traded in private markets. ActiveAllocator algorithms take asymmetric information into consideration and attenuate style drift in long dated investments.
In traditional investing, unlike in alternative investments, there is greater homogeneity between sub asset classes. ActiveAllocator algorithms are built to resolve greater heterogeneity in sub-strategies.
In traditional investing one does not have to worry about reporting bias. Within alternative investments reporting biases create distortion in performance data. For example, fund managers may cease reporting typically due to poor performance leading to survivorship bias. Another example is selection bias where a database incorporates the performance of fund managers who choose to report; managers who perform better will typically be more likely to report creating an upward bias. Yet another example is short history bias: shorter history may not accurately reflect longer term returns. ActiveAllocator algorithms address and resolve such biases.
Serial Correlation in Returns
In infrequently valued illiquid investments such as real estate or private equity, serial correlation in returns data causes an understatement in volatility. Serial correlation occurs when returns are inter-dependent as opposed to being independent across time. The result is risk is understated and the risk adjust return measure overstated. Also the true correlation between asset classes is altered. ActiveAllocator algorithms quantitatively adjust returns data using auto-regression techniques to remove serial correlation.
Non-Normal Returns Distributions
In alternative investments Illiquid and difficult to trade securities have unmeasured risk. Securities that are not consistently marked to marked understate risk or volatility. Moreover, extreme event tail risk is difficult to quantify and downside risk capture is difficult to measure. ActiveAllocator algorithms are purpose built to address this and make provisions for left tail skew and kurtosis optimization.
In alternative investments some hedge fund managers do not rigidly limit themselves to one strategy as they pursue market inefficiencies. The flexibility to seek out investment opportunities is an advantage, but such style drift also poses unique risks for investors. ActiveAllocator algorithms group strategies that are correlated as well as have similar statistical return characteristics into baskets to reduce the adverse effect of style drift in portfolios.
We help you cut through opacity, fund manager claims, investment industry jargon to see the investing world in simple terms. We use our skills and proprietary analytical techniques to work for you so that you can serve your clients better. We help you decide between multiple competing potential high performing managers, dynamically control risk and incorporate objectivity in your asset allocation process. We help you exercise your responsibilities to your clients better.