Wednesday, April 18, 2007

MarketWatch: "Hedge funds have lost 'alpha,' Merrill director says"

Managing Director Heiko Ebens says, "Alpha has essentially disappeared", from hedge funds as an industry. Alpha is academic finance jargon for returns of a comparably risky investment beyond those of an appropriate market benchmark, or index. in other words, a manager with good results adds alpha, but a poor one generates "negative alpha".

"Ebens argued on Tuesday, in front of a stonily silent audience, [emphasis added] that most hedge fund returns come from the broader markets and can be replicated by indexes constructed, coincidentally, by Merrill...."

"Ebens touched on a sensitive subject for the hedge fund industry. As assets have ballooned and more managers have entered the business, some argue that increased competition for a finite number of trading opportunities has dented returns. If that's true, the high fees levied by hedge fund managers may no longer be worth paying."

Indeed! Read the article.

No 'alpha,' Merrill director tells hedge fund conference

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