Lotsoff Capital Management executives are seeking a double alpha in an enhanced equity portfolio management strategy that is part of the firm's expansion into equities.
The strategy combines an existing fixed-income overlay strategy with a quantitative equity approach that seeks to minimize tracking error and maximize return relative to a benchmark.
Outperformance would come from both the fixed-income overlay and the long equity positions, hence the double alpha, said Seymour N. Lotsoff, senior managing director and principal of the Chicago firm.
The combined fixed-income and equity approach resulted from the hirings last year of Joseph Pappo and Donald Reid to form the core of Lotsoff's new equity portfolio management group.
While Lotsoff already manages portfolios with equitylike returns -- using a combination of derivatives and fixed-income securities -- the hirings of Messrs. Pappo and Reid resulted in the firm's first purchases of actual stocks for clients. The two most recently worked for Weiss Peck & Greer LLC, Chicago, leaving shortly after Daniel Cardell was hired to head the quantitative equity division in 1996.
L. John Achenbach, a managing director and principal with Lotsoff, has assumed responsibility for product strategy and business management, while Gary Lisk, director, was hired last year to provide marketing support.
Executives for Lotsoff said McDermott International Inc., New Orleans, gave Lotsoff $65 million to invest in the combined strategy. And Lotsoff manages another $35 million in its fixed-income approach for McDermott, Mr. Achenbach said.
The new combination strategy seeks to outperform benchmarks by about 250 basis points, although the expected alpha varies with the capitalization of the equities used.
Lotsoff also has expanded into hedge funds, offering leveraged versions of existing strategies. It has $300 million in hedge fund assets under management, Mr. Achenbach said.