Mutual fund company launches retail portable alpha funds based on “real” alpha
Dec 3rd, 2007 | Filed under: Portable Alpha & Alpha/Beta SeparationCan you spot a fake?
For several years now, academics and practitioners alike have questioned whether the alpha reported by hedge funds is ”real” or whether it’s just alternative or “exotic” beta. Yet it seems the mutual fund industry has been largely immune to such rigorous analysis. Once the influence of the market is removed from a mutual fund’s return stream, it is often assumed that what remains must be alpha. However, this alpha is no more “real” than the alpha produced by a market neutral hedge fund.
Now Investment News reports that one mutual fund company has applied concepts such as “exotic beta” to the mutual fund industry. The result is a sort of packaged portable alpha solution for US retail investors:
“FundQuest plans to launch several mutual funds based on in-house research to create active and passive strategies within a single portfolio — a first for the mutual fund industry.”
The idea of pre-packaging alpha and beta in various, flexible combinations is the stock-in-trade of many funds of hedge funds (see related posting). But Investment News may be right that the mutual fund industry has never really embraced portable alpha-like solutions. FundQuest may have institutional investing in its blood, however. It’s owned by BNP Paribas, the mega-manager with deep institutional roots.
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