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Alpha PLUS aims to boost US treasury yields

01 February 2017

Alpha PLUS technique revolves around back-to-back repo agreements

Read more: treasuries yield

Lewis Goldman, "Lucky Lew" as his friends call him, has forged a career out of developing and distributing new products and strategies for beneficial owners in the fixed income market.  

The native New Yorker has structured, priced, marketed and sold structured securities to countless institutional money managers, broker dealers, and trading desks at bond houses globally. Most of his time is spent dealing in the US Treasury market – the deepest and most liquid in the world.

Back in 2010 while enjoying the festivities of his twin sons Bar Mitzvah party, Goldman collapsed as a result of sudden cardiac arrest and was saved by his two best friends since the age of 11 who were there with him on the dance floor.  His friends happen to be cardiologists.  Lucky Lew.    

Three years later he set out on his own to form his own business, Goldman Landow Capital, named from his grandparent’s surname.  Working with his longtime friend and colleague Marc Greenspan, Goldman hopes luck extends to his latest venture, US Treasury Alpha PLUS - a process designed to allow pension funds, corporates and other institutional investors to enhance the yield on their US treasuries.

The technique revolves around back-to-back repo agreements, allowing beneficial owners to maintain ownership of their original T-Bills or Treasury Notes while earning fees from substitutions of collateral carried out with an approved counterparty. In exchange for the potential yield enhancement, the beneficial owner must be indifferent to holding and potentially owning Treasuries that mature within a 16-day window.

"Anytime you can add additional alpha without adding risk it would be prudent to do so," Goldman said. "In the case of Alpha PLUS after considerable vetting with experts in the field of yield curve analysis, the conclusion is the 16 day potential maturity differential is, even in extreme volatility, insignificant compared to the potential yield enhancement that can be generated by engaging in Alpha PLUS.  I would rather forgo the few basis points of opportunity cost created by the potential 16 day maturity differential to pick-up 15 to 35 basis points in additional alpha."

Al Kramer, a former treasurer for Carson City, Nevada - a position he held for 20 years -  is familiar with the process Goldman and Greenspan are promoting. "I used a virtually identical technique back in 2004 when managing $40m of US Treasuries for Carson City," Kramer told Global Investor/ISF.  "It made a lot of sense to me. Every transaction led to a positive gain. We saw returns in excess of 42bps over two years.

"If you own treasuries, why wouldn’t you enhance them?  Admittedly it’s a niche area. Maybe the enhancement from the technique isn’t enough to persuade you to put more money in treasuries, but that’s not what this is about," Kramer added.

Goldman will be speaking to some of the largest US pension funds this week in Florida at the IMN’s Securities Finance and Collateral Management Conference. He’s confident Alpha PLUS will prove popular in the end, although he admits widespread adoption is a long-term goal.

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