Dynamic Capabilities and Option Thinking for a Spectral Portfolio Management
Dynamic Capabilities and Option Thinking for a Spectral Portfolio Management

The Case of Alternative Investment Funds in Romania

Author(s): Mircea Boscoianu, Costel Ceocea
Subject(s): Management and complex organizations
Published by: Trivent Publishing
Keywords: alternative investment funds AIF; spectral portfolio management; frontier-capital market; emerging markets; knowledge- based economy KBE; dynamic capabilities for portfolio management (DCPM)
Summary/Abstract: Even if the macroeconomic indicators are impressive, and the individual performances of the companies selected by MCSI are very good, Romanian capital market is still a frontier-market and investors are still waiting for the signal toward the status of emerging market. The good news in Romanian capital market are related to the emerging interest in alternative investments and Alternative Investment Funds (AIF). After decades of indicial management, the mutual fund market is ready to engage in other strategies that could offer a better profile of performance- risk- liquidity triangle. Fund managers are open now for innovative architectural configurations and the portfolio managers try to adapt their instruments to this trend. In addition the new configurations could offer synergies with co-investments, public- private partnerships (PPP) and the expansion via retail. The actual interest of investors oriented toward superior long- term returns will contribute to the process of closing financial gaps, the growth of the interest in initial public offerings IPO, with direct impact on the development capacities of Romanian capital market. Alternative investments via AIFs (both closed- end and open- end investment funds) are still limited and only recently authorized (2017-2018), but they prove professionalism and transparency, together with real capabilities to exploit the market opportunities and to control the risks. Romanian AIFs demonstrated that portfolio managers understand the realities in the market and flexible adapt their strategies to offer performance and stability These trends could benefit by the governmental support regarding the development of the alternative investment culture, the acceleration of the specific regulatory infrastructure, the institutionalization of specific processes, public- private partnerships PPP and retailization. AIFs could benefit from the actual context and could also offer new paths in the development of Romanian capital market, with capacity to build buffers of liquidity and automated natural stabilization of segments of market and also a robust impact on the capacity to finance projects in the real economy. AIFs could also contribute to the market discipline and the operational practices. In a frontier-capital market with low liquidity and a lot of opportunities but also frictions, the managers should also integrate the new concept of spectral portfolio management, represented by a set of rotating sub- portfolios that activate around a core stable sub- portfolio. In this case it is possible to capture the spectral dynamics that characterize frontier capital markets, with the interactions between a rigid or inactive central portfolio and the set of active sub- portfolios with styles of management (hedge fund style, private equity/ venture capital fund style). Fund managers and especially portfolio managers try improve their performance together with the qualitative elements in their search for a robust alpha- Jensen. In this case, we propose a second contribution to the art of portfolio management in frontier/ emerging markets, regarding the integration of the new concept of dynamic capabilities as a paradigm for portfolio strategic management together with option thinking (real options on sub- portfolios), as a paradigm for tactical portfolio management.

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