The Search for Alpha—Sources of Future Hedge Fund Returns

Abstract

Two types of hedge fund investors exist: alpha seekers and beta chasers. If alpha seekers dominate the market, the decline in alpha per dollar invested in the hedge fund industry is likely to continue as long as the supply of alpha is finite. If, however, beta chasers dominate, growth in the industry should be sustainable because beta return is easily replicated and, therefore, the supply of beta virtually unlimited.