Exposure Management
Adjust Portfolio Risk without Restructuring the Holdings
Our Approach
Asset allocation-level exposure management helps asset owners manage portfolio risk and adjust policy exposures without restructuring underlying holdings. In addition, the overlay approach to exposure management provides a starting point and ongoing toolkit for achieving Total Portfolio Approach (TPA) objectives. Derivatives can support rebalancing, cash equitization, portfolio transitions and capital deployment across multiple asset classes, giving institutions a more precise way to address market risk, maintain target allocations and respond to changing portfolio needs and market conditions. We assess each change in the context of the portfolio’s asset allocation, cash flows, liquidity and collateral requirements, implementation costs and existing manager structure. Efficiency, cost mitigation and risk management are central to how we approach each mandate.
Portable Alpha
Separate alpha generation from market beta by allocating physical capital to selected return sources while derivatives maintain intended policy exposure.
Learn more about Portable Alpha
The traditional portable alpha approach allocates physical capital to selected absolute return strategies while using derivatives to maintain the portfolio’s intended market exposure. We generally implement the beta portion of a portable alpha program using a combination of cleared and OTC derivatives; however, in pursuit of capital efficiency, we can provide either synthetic beta or alternative alpha sources as part of the solution—or both components together. The beta portion of the program can also serve as a dynamic tool to rebalance the overall asset allocation.
Portfolio Leverage
Increase selected portfolio exposures through derivatives without requiring an equivalent increase in physical asset commitments.
Learn more about Portfolio Leverage
We use derivatives to help institutions maintain return-seeking, liability-hedging or targeted risk-premia exposure across asset classes when funded capital may not support those objectives simultaneously. Portfolio leverage may be appropriate when reallocating physical assets would weaken another portfolio objective. Relevant applications include maintaining return-seeking exposure while increasing liability hedges, or adding exposure to a selected risk premia without liquidating existing holdings. Our analysis considers financing costs, collateral demands, basis risk and how market movements may affect leverage, liquidity and total portfolio risk.
Tail Risk
Address severe market declines through explicit hedges designed to respond during abrupt portfolio drawdowns.
Learn more about Tail Risk
We construct tail risk hedging strategies with payoffs designed to respond as equity losses deepen beyond specified levels or implied volatility rises sharply. The approach may be relevant near full funding, ahead of a pension risk transfer transaction or during another period when balance-sheet capacity, liquidity or recovery time is constrained. We design the hedge around the trade-off between the reactivity of the payoff and the expected cost of maintaining protection. Structures that respond earlier or across more scenarios likely require greater carry cost, while narrower structures may provide meaningful protection only after extreme drawdown scenarios.
Currency Hedging
Manage foreign exchange risk separately from the international assets that create it through a defined derivative hedging program.
Learn more about Currency Hedging
We manage foreign exchange exposure through a separately defined overlay, using target hedge ratios and operating ranges established for each asset class and currency. Currency hedging may be relevant when foreign exchange exposure introduces risk that is separate from the intended role of an international equity or fixed income allocation—and as an overlay, it allows the institution to manage that exposure without changing the underlying assets. We structure the mandate around defined operating ranges so the overlay remains responsive to changing portfolio exposures without requiring continuous trading.
Rebalancing
Restore target policy allocations using derivatives to reduce reliance on physical asset purchases and sales.
Learn more about Rebalancing
We restore target asset-class exposures using derivatives when market movements create portfolio drift, reducing the need for immediate physical-asset trades. Derivative-based rebalancing may be relevant when available cash is insufficient to correct allocation drift or physical trades would add cost, delay or operational complexity—allowing policy exposure to be restored while physical asset transfers and underlying portfolio decisions proceed separately. We establish a standing framework that allows approved exposure adjustments to be implemented promptly when allocations move outside defined ranges, balancing expected transaction costs and tracking error versus the policy benchmark.
Cash Securitization
Keep cash available for collateral, benefit payments and operating needs while maintaining intended market exposure synthetically.
Learn more about Cash Securitization
We use derivatives to maintain intended market exposure while asset owners retain cash for collateral, benefit payments and other liquidity needs. Cash securitization may be relevant when an institution must hold liquidity despite having no strategic allocation to cash—without an overlay, that balance can leave the portfolio below its intended exposure to equities, fixed income or another policy asset class. We treat cash as part of the portfolio’s exposure structure rather than a standalone holding, and the overlay can be structured to resemble the underlying exposure of the cash source or combined with a rebalancing program to target the policy asset allocation.
Exposure Management Perspectives
Why NISA
Our Distinguished Approach
We partner with clients to build tailored solutions in pursuit of unique goals. Our style seeks consistent outcomes with high-quality, risk-adjusted returns.
Authentic Alpha
Actively managing specialized strategies across asset classes and markets, emphasizing diversification and proven processes that strive to deliver consistently high information ratios.
Beta Optimization
Capturing targeted market exposures efficiently, minimizing uncompensated risks and identifying opportunities created by structural gaps in market conditions.
Strategic Partnership
Cultivating enduring partnerships that reflect a deep understanding of client objectives with portfolios designed to deliver strategic outcomes.
Partner With NISA
Discuss Your Portfolio Objectives with Us
Portfolio losses are realized with the assumption that the client will use these losses to offset gains. To the extent the client does not have gains available to offset in the current period, the value of the tax benefit of such losses will be less than reported.