BILLIONS - Alpha: How Hedge Funds Find their Edge (Feat. Nicolas Rabener)
Channel: InvestOrama
Date: 2021-05-20

This BILLIONS analysis is about hedge fund ALPHA (α). One of the most important and elusive objectives in alternative investments. 
Does Axe Capital Produce Alpha? What are the skills involved? And how does it compare to the real world? I'm teaming up with Nicolas Rabener from Finominal to answer!

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Alternative Investment concepts in this episode:
👉 Alpha of investments 
👉 Beta of investments
👉 Alternative Beta
👉 Outperformance & Excess Returns
👉 Hedge Fund Manager's skills

ALPHA FORMULA
Alpha = R – Rf – beta (Rm-Rf)
R represents the portfolio return. Rf represents the risk-free rate of return. Beta represents the systematic risk of a portfolio. Rm represents the market return, per a benchmark.
In the next video, I will calculate the actual Alpha of the Axe Capital fund (digging the numbers)

TRANSCRIPT FROM NICOLAS RABENER
The information asymmetries have largely been arbitraged away.
And the reason for that is quite simply because if you think about public equities, it's very difficult for a fund manager at JP Morgan to have a competitive edge or someone at Goldman Sachs. There's they have the same data,  a Bloomberg terminal. How they're supposed to create outperformance they have the same access to management and so on. 
The basis of that is because data is becoming better and technology's become better. So nowadays it's quite simple. You can go to any data provider we more selves and find out does a certain portfolio or certain fund managers you have alpha, if you think back 20 years ago, it was a much more difficult exercise.
Versus today you have more than three million indices so we can dissect fundamentals.
Performance really finely and find out. Is there really something unexplained the fund managers doing? Was it simply something out of alternate beta space or some sort of market exposure that just wasn't measurable before?
And of course, going forward, I think, like from an industry perspective, this will become even tougher because data will continue to improve a technology we can improve. So I think the power posture is shifting from the fund managers to the allocators as the effect of being empowered by data technology.

ABOUT THE BILLIONS SERIES
Emmy® and Golden Globe® winners Paul Giamatti and Damian Lewis star in a complex drama about power politics in the world of New York high finance. Shrewd, savvy U.S. Attorney Chuck Rhoades (Giamatti) and the brilliant, ambitious hedge fund king Bobby "Axe" Axelrod (Lewis) are on an explosive collision course, with each using all of his considerable smarts, power and influence to outmanoeuvre the other. The stakes are in the billions in this timely, provocative series.

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