Anyone Here Seen Alpha?
| Aug 28th, 2006 | Filed under: CAPM / Alpha Theory | By: Alpha Male |
By: Jack Willoughby, Barron’s
Published: March 27, 2006
This article discusses Duke professor David Hsieh’s comments that capital markets may contain approximately $30 billion of “inefficiency” and therefore $30 billion of “alpha” per year.
Excerpt:
“Everyone talks about the hunt for alpha — a return above the overall market’s average — and how it can cause funds to take on too much risk. But no one has dared try to snare an alpha in the wild, and haul it back to captivity.
“Until now, that is. David A. Hsieh, (pronounced Shay), a finance professor at the Fuqua School of Business at Duke University, estimates that the $1 trillion hedge-fund industry is chasing a mere $30 billion in alpha per year. That’s precious little to support the hefty fee-generating machinery, ostensibly developed to scoop up excess return.”
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[...] In the hedge fund realm it has been hypothesized that there is only a limited amount of “alpha” that can be captured by hedge funds. Logically if the hedge fund industry continues to grow that alpha will be spread ever more thinly. The question is the same for private equity as well. As more private equity firms raise ever larger funds it begs the question whether the pickings will become slim? [...]
[...] As you may recall, Duke professor David Hsieh caused a stir in the hedge fund community last spring when he suggested that the overall amount of alpha available in the hedge fund industry was only around US$30 billion (posting, original article). Subsequent commentators have suggested that he may not be far off since $30b represents about 3% of alpha on the $1.1 trillion industry – and that 3% “free lunch” sits adequately well with many academics. [...]