Separation of Alpha and Beta
Viewed from the implementation side, investment techniques and strategies are the means to either capture risk premia (beta) or to obtain excess returns (alpha). Whereas returns from beta are a result of exposing the portfolio to systematic risks (traditional or alternative), alpha is an exceptional return that an investor or portfolio manager earns due to his unique skill, i.e. exploiting market inefficiencies. Academic studies as well as their performance in recent years strongly support the idea that the return from hedge funds mostly consists of (alternative) risk premia. This is the basis of the various approaches to replicate the return profile of hedge funds by direct exposures to alternative beta (hedge fund replication).
Read more about this topic: Alternative Beta
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