What are overlay strategies?
Overlay strategies are investment strategies that use derivative investment vehicles to obtain, offset or substitute specific portfolio exposures, beyond those provided by the underlying portfolio assets. They allow pension fund sponsors to increase or reduce exposure in a fund, relative to its actual funded amount.
The strategies generally involve a synthetic replication of an asset class, market or factor exposure, such as portable alpha, foreign exchange overlays, rebalancing, liability-driven investments, cash equitization, hedge fund replication, and completion overlay.
The fair value of the overlay portfolio is often very small or even zero because it is generally funded and implemented by using derivatives. The overlay portfolio can be highly leveraged as a result of using derivatives.
Real-world constraints on capital and resources can make managing portfolio performance and risk difficult. Learn some of the ways a completion manager may help relieve some of these concerns in this whitepaper.
This study provides insight into an Overlay program and how it can seamlessly provide the beta exposure (long and short) for a portable alpha strategy in a cost-efficient manner.
In this whitepaper, learn how to maintain the desired interest rate hedge versus the liability, how to minimize yield curve mismatch, and how to align with the plan’s and liability’s spread exposure.
Overlay Strategies Resources
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Milliman Managed Risk Strategy: The Methodology
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- By Milliman Financial Risk Management LLC
- June 22, 2020
- Explore risk-management techniques used by institutions to stabilize portfolio volatility and weather market crises.
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Three Months Off the Peak
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- By Russell Investments
- June 18, 2020
- Review the four key lessons learned by Russell Investments following the COVID-19 pandemic.
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Completion Portfolio Management: Using Completion Overlays and Sleeves to Enhance Portfolio Flexibility
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- By Parametric
- May 13, 2020
- Learn some of the ways a completion manager can help relieve concerns when developing an asset allocation framework.
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Primer on Completion Portfolio Management
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- By NISA
- May 08, 2020
- Read a whitepaper about how completion managers protect a portfolio’s funded status against changes in interest rates or the yield curve’s shape.
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Confessions of a Beta Jockey
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- By Russell Investments
- April 30, 2020
- Review beta exposures and capital derivatives with Russell Investments, a specialized manager in overlay strategies.
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