Alternative risk premia (aka dynamic beta) strategies follow a mechanistic, rule-based implementation based on well understood (and academically documented) underlying factors. The systematic nature of these strategies requires that institutional investors conduct dedicated due diligence on the robustness of the strategy implementation. The SBAI’s Alternative Risk Premia Working Group developed memos on backtesting and broker dealer practices that provide guidance to institutional investors, managers and broker dealers, as well as a framework of questions investors may wish to ask managers and broker dealers when conducting investment and operational due diligence.
The Backtesting Memo focuses on the assessment of the strategy development process, identifying the key areas investors need to assess in their due diligence, including statistical overfitting bias, accuracy of assumptions and length of backtesting time series.
The Broker Dealer Practices Memo sets out the key distinctions between managed funds and broker dealer products as ways to access risk premia strategies and provides a due diligence questionnaire institutional investors and managers can use to assess broker dealer products.
Press release (07-2020)