To the extent that alpha is the measure of added value that a portfolio manager contributes to the returns of his portfolio relative to the general market, Structural Alpha is the measure of the added value that a portfolio manager gains by executing his or her investment strategy through an insurer, reinsurer, or bank rather than executing an identical investment strategy in a fund or managed account.
In this context, we believe that Warren Buffett’s success has far more to do with his investing through Berkshire Hathaway’s insurance, reinsurance, and banking (until 1979) businesses than his stock picking. As such, we provide seed capital to startup insurers, reinsurers, and banks that follow the Berkshire Hathaway model by combining one of our proprietary product strategies with an investment strategy generating returns greater than 5% per year over any 5 year rolling period of time.
Assuming that the investment strategy returns more than 5% per year and that insurance or reinsurance underwriting losses or bank deposits never exceed 5% per year, the insurer, reinsurer, or bank incorporated in a no or low tax jurisdiction will generate levered tax-efficient earnings that will outperform a fund or managed account with an identical investment strategy,
In addition to outperformance, these insurers, reinsurers, and banks secure permanent capital and generate massive fees for investment managers from sources otherwise unavailable if the investment manager only manages funds or managed accounts.
We are managed by Taussig Capital Inc. ("TCI"). TCI also oversees the affairs of each of our Startups until they IPO, after which it monitors the Startup's adherence to our risk management principles. For a deeper dive into the merits of Structural Alpha and how TCI operates, please link to www.taussigcapital.com.