Searching for Alpha…Because You Can Never Go Beta Again

Abstract

The picture in the investment management industry could hardly be worse. Restaurants in Lower Manhattan have barely recovered from 9/11. Chichi boutiques and car dealerships in New Jersey and Pennsylvania have been hard hit without the seven-figure bonuses sprinkled about during the bubble. In sharp contrast, a feeding frenzy of excitement appears to be the norm these days at standing-room-only hedge fund conferences across the United States. Given the abysmal performance of the public equity market in recent years, the next step is to search for alpha—returns that are wholly uncorrelated with movements in public equity markets. This article describes how hedge funds are leading the way in the global search for alpha.