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    Today's Post

    Lies, Damned Lies and Alpha Guest columnist Andrew Beer looks at alpha.

    There are three kinds of lies: Lies, damned lies and statistics.--Benjamin Disraeli Investors equate “alpha” to outperformance. A high alpha fund presumably delivers substantial excess returns relative to its benchmark. True alpha is short hand for manager skill. As we know, idiosyncratic returns can improve the risk adjusted returns of a diversified portfolio, and hence investors will pay high fees for “alpha.” Unfortunately, as a general rule, alpha is widely misunderstood and misused. Statistically, alpha simply is the result of a linear regression between two return streams. The regression finds the straight line (ordinary least squares) that best fits the time series. Visually, beta is the slope of the line and alpha is where it crosses the vertical axis. The calculation was designed to uncover managers who outperform simply by taking on more risk. A manager who leverages to outperform the S&P in an up year will show a high beta but no alpha. Conversely, a manager who took less risk yet matched the S&P will have a beta of less than ...

Featured Post

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Dear Readers: We need your help! has been selected to compete in's 2015 Best Investing Blog Contest and we need you to get out and vote! We're honored to be a part of this prestigious group of blogs. Given that there are thousands of finance blogs out there and we've been chosen as one of the Top 50 is a tribute to all of you who read and contribute to and for that I thank you. To get to the ...

The Skorina Report: The Best, The Rest & Our Pick for Public Endowment CIO of Decade

Charles Skorina looks at the top public endowments and discusses performance with Erik Lundberg.

This month we are pleased to bring you our annual survey of endowment performance at the Public Ivys, including many of America’s biggest, most prestigious, and best-endowed public universities. We think the performance of these endowments ought to be of interest not only to the endowment and foundation community, but to the investment world at large.  They include some extremely talented people getting results which rival investment organizations anywhere. And, they are important clients for many for-profit money managers all over the ...

Guest Posts

Vote for for Best Investing Blog
"Vote early and vote often!"

Dear Readers: We need your help! has been selected to compete in's 2015 Best Investing Blog Contest and we need you to get out and vote! We're honored to be a part of this prestigious group of blogs. Given that there are thousands of finance blogs out there and we've been chosen as one of the Top 50 is a tribute to all of you who read and contribute to and for that I thank you. To get to the ...


Northern Trust on Hedge Funds, Big Data and Transparency
The integration of data isn't fully on the hedge fund industry radar yet. Yet it may be critical to rebuilding manager-investor relations via whiz-bang 21st century technology.

Northern Trust’s new report about transparency in hedge fund holdings reminds me somewhat of the opening narration in the cheesy television show “The Six Million Dollar Man,” which ran on ABC from 1974 to ’78. The viewer sees an airplane crash and hears a narrative voice describe the pilot, Steve Austin, as “a man barely alive.” But, a character’s voice chimes in here, “We can rebuild him. We have the technology.” The phrase, “we have the technology” with the slight emphasis on have, has been employed ever since for circumstances in which ...

Hedge Fund Strategies

If I Can’t Call It a Hedge Fund, What AM I Going to Call It?
Intrepid contributor Doug Friedenberg addresses a burning nomenclatural issue for the investment style formerly known as hedge funds and proposes a solution to save the financial system.

Wall Street Journal, March 27, 2015: "One of the keys to running a hedge fund is learning how to say you don't. Grappling with years of uneven performance, image problems and deep-pocketed clients who have publicly distanced themselves from the industry, hedge-fund managers are taking pains to avoid the moniker." The problem may be a lot more serious than any of us think and threaten the global economic system. A few short years ago, western civilization was threatened by a proposed change in the taxation of hedge fund managers, if you read ...

Alpha Strategies

A Caddie’s Observations on Money Management
Guest columnist Diane Harrison on investment lessons learned on the golf course.

By Diane Harrison Golf is a game but also a mindset. As one of the harder sports to master, golf has long provided business partners, clients, and co-workers a valuable opportunity to observe behavior on the golf course that provides a strong indication of what makes up their peers’ mental fabric. There is a reason many business deals are made, and lost, on the golf course. Mastering the ability to handle oneself gracefully in golf is far more valuable than owning a low handicap. In fact, failing to behave appropriately is ...

Media Coverage of Hedge Funds

What Happens When You Pick A Fight With Activist Hedge Funds
The tear-jerker ending to a famous Broadway musical comes to Faille's mind as he contemplates the latest twist in the struggle over DuPont's board.

At the end of the musical Camelot, King Arthur, near the end of a tumultuous reign, commands a youngster, Tom of Warwick, to stay away from battles. Tom, an idealist, has heard wonderful tales about the Roundtable, and he wants to become a knight. Arthur mutters that this is an extinct career. His army is about to encounter Lancelot’s army, and however the battle goes, the war itself means the end of Camelot. Still, he cannot turn away this lad, who has come before him as proof that his own youthful ...


Corporate Governance: Sunday in the Park With George
The controversy over corporate governance, and whether the changes favored by reformers show up as superior corporate performance (as measured, for example, by Tobin's q) strikes Faille as dangerously abstract. The only way to get to the pointillist painting is by starting with particular data points.

One much discussed question in the academic study of modern finance is: “does corporate governance really matter?” That question was the title of a classic paper on the subject by David F. Larcker of the Graduate School of Business, Stanford University, and two colleagues, in 2004. I hope to say something about that question, but I’ll also make an epistemological point in what follows. Let’s start by defining the question: does the whole nest of surrounding ...

Legislation/Court rulings

The STOCK Act Was Just For Show: Looking at the Inside of Insider Trading
What about the Congressionally employed leaker in a matter that looks like an insider tip to hedge fund traders? Is the SEC even allowed to ask? Shockingly, Congress wants special treatment for itself and its staff.

A fascinating bit of litigation, one with financial, constitutional, and even psychological significance, seems to have been frozen in place in the Manhattan district court since last New Years’ Eve. Yet it has received a flurry of attention amongst bloggers in recent weeks, as interested parties have made a belated discovery of what is at stake. The litigation in question arose because there is reason to believe that about two years ago Brian Sutter, the staff ...


Banned in China: High Praise for a Statistics Textbook
At this moment, when news from China has turned sober and the monetary/fiscal authorities there seem torn by inconsistent goals, a tweet flutter has reminded us of a boring data-analysis text that was nixed by a publishing house in China for reasons of political sensitivity.

There was a time when the expression ”banned in Boston” was a selling point. Indeed, the expression may have its roots as far back as 1651, when the leaders of the capital city of the Massachusetts Bay Colony were scandalized by the work of one William Pynchon, the founder of Springfield, portrayed here. Pynchon criticized pivotal aspects of Puritan theology in his tome, The Meritorious Price of Our Redemption. I can’t say whether the controversy, and ...


AIMA: Debt Funds Filling a Need in Europe, UK and US
A new survey from AIMA seems designed to dispel the idea that alternative finance is a game played somewhere far away from the 'real economy.' The gist of it is that as banks withdraw from lending to that real economy, alternative asset managers, including hedge funds, have stepped in to fill the void.

A new paper from the Alternative Investment Management Associations discusses the role of hedge fund managers in the non-bank lending environment, and finds that the market for lending by such entities continues to grow because it serves a need: financing small and medium sized entities that otherwise would have difficulty accessing either the capital markets or available lending from banks. New legislation and the regulation that has remodeled the banking industry in the years since the ...