Comments on: Is there an optimal mix between alpha and beta in hedge fund returns? http://allaboutalpha.com/blog/2006/10/18/is-there-an-optimal-mix-between-alpha-and-beta-in-hedge-fund-returns/ A finance blog about hedge funds, portable alpha and alternative investing. Mon, 13 Feb 2012 11:26:54 +0000 http://wordpress.org/?v=abc hourly 1 By: rckang http://allaboutalpha.com/blog/2006/10/18/is-there-an-optimal-mix-between-alpha-and-beta-in-hedge-fund-returns/comment-page-1/#comment-51 rckang Thu, 19 Oct 2006 18:22:59 +0000 http://allaboutalpha.com/blog/2006/10/18/is-there-an-optimal-mix-between-alpha-and-beta-in-hedge-fund-returns/#comment-51 Just a thought about beta in hedge funds. If you look at any of the major hedge fund indices (I know they all have their flaws) and compare their 3 year charts with the S&P 500, you'll see that they track fairly well. Actually it's suprising how close they track in many cases. I'm talking about the broad indices, not the specific sub-indices for the various hedge fund strategies. For us in Canada, it's even stronger. The growth lines for the Scotia Capital Hedge Fund Index (both equal weighted and dollar weighted) are basically on top of the TSX Composite Index since December 2004 (I know it's a short time period). To me, it's a good thing. The market was going up, it was the right time to be a closet indexer. During 2000-2002, you saw the CSFB-Tremont and HFR basically flat lined while the equity indices fell. Thus, the hedge fund indices, in the long term look like the equity indices with occasional put options in play during major market downturns. On a separate note, I see more academic papers about beta and alpha in hedge fund returns. They always have a conclusion about significant alpha in their returns. I find papers focusing more on the beta component coming from the industry (ABP guys discussed earlier and others like Lars Jaeger). Cynical by nature I am, but if I were a grad student hoping to work at a hedge fund in the not too distant future, I'd also be wary of downplaying the potential for finding alpha in hedge fund strategies. That's just obvious. Just a thought about beta in hedge funds. If you look at any of the major hedge fund indices (I know they all have their flaws) and compare their 3 year charts with the S&P 500, you’ll see that they track fairly well. Actually it’s suprising how close they track in many cases. I’m talking about the broad indices, not the specific sub-indices for the various hedge fund strategies. For us in Canada, it’s even stronger. The growth lines for the Scotia Capital Hedge Fund Index (both equal weighted and dollar weighted) are basically on top of the TSX Composite Index since December 2004 (I know it’s a short time period). To me, it’s a good thing. The market was going up, it was the right time to be a closet indexer. During 2000-2002, you saw the CSFB-Tremont and HFR basically flat lined while the equity indices fell. Thus, the hedge fund indices, in the long term look like the equity indices with occasional put options in play during major market downturns.

On a separate note, I see more academic papers about beta and alpha in hedge fund returns. They always have a conclusion about significant alpha in their returns. I find papers focusing more on the beta component coming from the industry (ABP guys discussed earlier and others like Lars Jaeger). Cynical by nature I am, but if I were a grad student hoping to work at a hedge fund in the not too distant future, I’d also be wary of downplaying the potential for finding alpha in hedge fund strategies. That’s just obvious.

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