Framework for capital allocation

Framework for capital allocation

In this resource starved world, capital is scarce. Every dollar that you own has its place and deserves to be allocated properly.

Currently, I already have a huge chunk of capital tied up in a diversified portfolio levered up to 1.4 times. Portfolio has (& expected to) outperformed/ matched up to market returns with 2 to 3 times lower risk - in terms of standard deviation and drawdown.

But going forward, if I discover a strategy that exhibits appealing characteristics (e.g reasonably high returns with low or inverse correlation to broad markets, crisis alpha), how do I allocate capital to this strategy without increasing my leverage?

To answer this question, I developed a framework that I will adopt for each strategy.

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