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Legal Alpha
Legal Alpha is the extra performance generated in a specific, diversified investment portfolio by using opportunistic and selective legal activism to obtain compensation for under-performance related to legally relevant unforeseen and uncontrollable circumstances.
Traditionally, fund managers have been focusing on generating economic alpha〔Atlas, Riva D., ("How to Generate Alpha in a Predominantly Beta World" ), ''The New York Times'', November 30, 2005, also discussing another alpha theory: “portable alpha.”〕 by making effective investment decisions before the investment assets are allocated and deployed, followed by an active performance and benchmark related monitoring of the portfolio’s performance. Several methods and theories for the generation of alpha exist and new methods and theories are constantly developed and tested.〔For example “portable alpha”, Kung/Pohlman, (“Portable Alpha – Philosophy, Process & Performance” )〕〔The “Modigliani Risk-Adjusted Performance measure”, Modigliani, Franco, “Risk-Adjusted Performance”, ''Journal of Portfolio Management'', 1997〕 Legal alpha represents an additional method of improving performance. This can be achieved by actively monitoring a portfolio for legal opportunities to obtain compensation for under-performance related to unforeseen and uncontrollable events involving non-transparent market information. Thus, Legal Alpha is generated by recovery efforts, thereby limiting the downside of any performance cycles and adding to the economic alpha generated by effective investment decisions.
==Ways of Generating Legal Alpha==
Legal Alpha is generated by a pro-active but selective cooperation between the internal legal/portfolio management department and its external legal advisor of institutional investors or asset managers. These need to responsibly, and in the best interest of clients, consider all legal and economic options of enforcing claims attached to any assets managed. Hence, legal and economic positions must be analyzed together and enforcement/compensation option must be selectively used in combination with the appropriate jurisdiction and methods for the pursuit and recovery of losses in situations involving securities fraud, misrepresentation or other unforeseen and uncontrollable events causing losses in a portfolio investment due to the fault of an issuer. Options to increase a portfolio's performance by generating Legal Alpha include for example (a) active, coordinated proxy voting and shareholder activism to produce sustainable, long-term value of the target company,〔Renneboog/Szilagyi, (“The Success and Relevance of Shareholder Activism through Proxy Proposals” ), 2005〕 (b) the systematic pursuit and recovery of losses by participating in class-action settlement disbursements,〔Cox/Thomas, (“Letting Billions Slip Through Your Fingers: Empirical Evidence and Legal Implications of the Failure of Financial Institutions to Participate in Securities Class Action Settlements” ), ''Stanford Law Review'', 2005〕 (c) actively pursuing compensation claims in private or class actions, or (d) the selective pursuit of appraisal actions.〔Letsou, Peter V., (“The Role of Appraisal in Corporate Law” ), ''Boston College Law Review'', 1998〕
While Legal Alpha is never an absolute performance increase indicator, it is always a relative performance enhancer in situations where a portfolio was affected by external, uncontrollable circumstances such as fraud. However, a portfolio must not have suffered a negative performance in order to warrant the efforts to generate Legal Alpha.
抄文引用元・出典: フリー百科事典『 ウィキペディア（Wikipedia）』
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