Hedge Funds Selling Alpha as Beta

Fees 22 Jul 2006

By: Greg Jensen, Noah Yechiely, Jason Rotenberg, Bridgewater Associates
Published: May 24, 2005


“Most institutional investors continue to tie together their alpha and beta decisions (i.e. an institution typically decides how much money they want in equities and then goes out and hires equity managers to manage it).  This is clearly inefficienct, as the two decisions need not be linked. Instead, investors should decide which asset classes they want to be in and then overlay on top of these asset classes the best alpha managers they can find, no matter which asset class they get their alpha from.  This is alpha overlay, and it is a better way to run a portfolio.  Cutting-edge institutions have begun to manage their assets this way, and the rest of the world will eventually adopt this superior strategy.”

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