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Alternative Market Briefing

The Big Picture: Alpha generation requires an additional level of tactics today

Monday, August 12, 2019

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Shalin Madan
B. G., Opalesque Geneva for New Managers:

According to Shalin Madan, who has been an asset allocator for 19 years and is co-founder of Bodhi Tree Asset Management in Fort Lauderdale, Florida, being able to understand what's driving rallies and bear markets movements in the next decade is going to be critical for generating alpha.

When he started working in the hedge fund industry in the early 2000s, one could earn 10% of alpha per year. But over the years, especially after the financial crisis, the ability to generate alpha or extract liquidity premia has been decimated to the point where a typical multi-asset class portfolio is unable to beat a balanced fund portfolio.

"It stands to reason that if securities alpha or manager selection alpha is no longer prevalent as it was 15, 20 years ago, the only way to generate alpha is by asset allocation; effectively being in the right asset classes or owning the right factors at the right time," he says in an Opalesque TV interview.

One can argue that the future will start looking like the past again, that hedge fund managers will be able to create alpha, that private equity will be able to generate returns above and beyond market proxies, but his firm is not on that page, he adds.

"We think the wor......................

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