Abstract
A portable-alpha strategy allows a fixed-income manager to reap the benefits of active management by porting excess returns from one benchmark to another through the use of long derivative positions. Furthermore, because tracking error is also portable and because the challenge of choosing the active portfolio is the same regardless of the benchmark, a change of benchmark does not alter a manager's information ratio and what would otherwise be a major shift becomes only a matter of routine accounting. In order to fully exploit portable alpha, however, investment management firms must change not only their organizational structures but their incentive structures as well.
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