The New Normal - Defining Alpha in Currency Management

by Momtchil Pojarliev, CFA

Currency Investor
Autumn 2010

Since the 1990s, institutional investors have been allocating resources less toward traditional assets like equities and bonds, and more towards alternative investments like hedge funds, real estate, private equity, currencies and commodities. This strategy was partly the result of a conventional belief that diversification is the key for successful investing and that the returns on alternative assets will have little or no correlation with returns on traditional investments. Unfortunately, during the financial crisis, investors discovered that correlations vary and that average correlations could be misleading.