In portfolio management, sometimes the sum of the parts is greater than the whole
| Nov 11th, 2009 | Filed under: Academic Research, Portable Alpha & Alpha/Beta Separation, Today's Post | By: Alpha Male |
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Earlier in the week, we told you about a great 100 page “mini-book” on alpha/beta separation. The authors (Analytic Investors’ Roger Clarke & Harindra de Silva and Brigham Young University’s Steven Thorley) provide a clear and cogent argument for why you’d want to separate and re-proportion the active and passive components embedded in any actively-managed investment mandate.
While the generic case outlined in the document involves a traditional long-only active fund, the authors also explore the potential role of hedge funds in alpha/beta separation. They point out that despite the popular assumption that hedge fund returns are nearly all alpha, this is “only partially true” in aggregate.
Hedge Funds not all about alpha – Just mostly about alpha
The following table shows the average proportion of risk derived from alpha and beta across arbitrarily-selected hedge fund strategies: More…
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This analysis is irrelevant since it excludes 2008. That’s when true HF beta (leverage, illiquidity, etc.) was exposed. Additionally, HFs now have their own form of beta, it’s called momentum and crowdedness.