Institutional alpha expectations remain (relatively) benign despite hype
Apr 8th, 2008 | Filed under: Institutional InvestingInformation is freer flowing than ever. As a result, gaining an information advantage is becoming notoriously difficult. Despite what the media says about institutions seeking fantastic returns from alpha, most institutions are painfully aware of how hard it is to beat the market over the long term (i.e. to produce true alpha). Far from being dreamers who have fallen under the spell of money managers (as some have accused them), institutions remain remarkably pragmatic.
A recent survey by consultancy Greenwich Associates hits the point home. The firm surveyed 583 institutions and found that the average expectation for alpha was actually a paltry 1.2% per annum.
As the chart below from the report shows, small public pension plans have the most optimistic view of their manager’s skill-level. Conversely, small private pension funds have the least rosy view of their managers’ ability to deliver alpha (chart beloe shows annual alpha expectations in basis points).
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