Tue, Mar 19, 2024
A A A
Welcome Guest
Free Trial RSS pod
Get FREE trial access to our award winning publications
Alternative Market Briefing

Other Voices: Tactical alpha and persistence in hedge fund returns

Wednesday, July 02, 2014

amb
Andrew Beer
This article was authored by Andrew Beer, founder of Beachhead Capital Management LLC in New York.

A vexing issue with hedge funds is the lack of persistence of returns. Last year’s winners generally are no more likely to be this year’s. Consequently, while quantitative screening tools help investors to identify strong historical performance, they are of little use in determining which funds will perform better going forward.

Beachhead’s proprietary research demonstrates that, while alpha overall does not persist, "tactical" alpha does. Broadly speaking, hedge fund alpha can be broken down into two sources: position alpha and tactical alpha. Position alpha represents outperformance due to security selection, illiquidity and other factors, such as optionality. Tactical alpha represents medium-term relative value trades across asset classes – such as investing in credit post-crisis or shifting back to developed markets equities in 2012-13.(1) Both position alpha and tactical alpha have a low correlation to equities over time, and hence are valuable diversifiers.

In order to study the persistence of tactical alpha, we examined the performance of 679 funds over the seven-year period from 2007 to 2013. The key conclusions are as follows:

• Managers that generated high tactical alpha (top quintile) in a given year outperformed the overall pool by 246 bps per annum on average in the following year.

......................

To view our full article Click here

Previous Opalesque Exclusives                                  
Previous Other Voices                                               
Access Alternative Market Briefing

 



  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. KKR raises $6.4bn for the largest pan-Asia infrastructure fund[more]

    Laxman Pai, Opalesque Asia: The New York-based global investment firm KKR has raised a record $6.4bn for its second Asia-focused infrastructure fund, underlining investors' continued appetite for private markets. According to a media release from the alternative assets manager, the figure top

  2. Bucking the trend, top hedge fund makes plans for a second SPAC[more]

    From Institutional Investor: SPACs aren't dead. At least not to the folks at Cormorant Asset Management. The life sciences firm, whose hedge fund topped its peers in 2023, is confident it will match the success of its first blank-check company. Last week, the life sciences and biopharma speciali

  3. Benefit Street Partners closes fifth fund on $4.7 billion[more]

    Bailey McCann, Opalesque New York: Benefit Street Partners has closed its fifth flagship direct lending vehicle, BSP Debt Fund V, with $4.7 billion of investable capital across the strategy. Benefit Street invests primarily in privately originated, floating rate, senior secured loans. The fun

  4. 4 hedge fund themes that are working in 2024[more]

    From The Street: A poor earnings report from Tesla (TSLA) has not hurt the indexes on Thursday. The decline in Tesla stock, which is losing its position in the Magnificent Seven pantheon, is more than offset by strong earnings from IBM (IBM) and ServiceNow (NOW) . In addition, the much higher-t

  5. Opalesque Exclusive: A global macro fund eyes opportunities in bonds[more]

    Bailey McCann, Opalesque New York for New Managers: Munich-based ThirdYear Capital rebounded in 2023, following a tough year for global macro. The firm's flagship ART Global Macro strategy finished the year up 1