- Ibbotson and Chen 1995-2004 hedge fund study: 40% systematic beta, 60% alpha (30% fees, 30% investor alpha). Critics contend, how much is naïve beta?
- Gruber 1996 study: mutual funds as a whole do not generate alpha.
- As the investment universe is broadened, the alpha potential increases, but the confidence in the alpha measurement decreases.
- The lower the Information Ratio or the less constrained the universe of measurement, the less reliable or the longer it takes to statistically detect alpha.
- Alternative Metrics Framework: a new paradigm to decompose hedge funds into two orthogonal components. Makes it easier to measure a fund’s value-add, and can potentially act as a benchmark.
- Active Policy Risk Stabilizers (APS): seeks to reduce portfolio volatility without reducing returns.
- Active Policy Return Enhancers (APE): seeks to increase portfolio returns without increasing risk.
Finished: 11-Sep-08