Use Case: Alpha Generation and Assessing Active Risk Decomposition from a Manager

In today’s volatile market environment, investors seek to maximize alpha generation while managing market betas and controlling risks. This article presents a framework for estimating the nature of alpha generated by an active manager.

The proposed quantitative multi-asset approach projects fund risk onto market-weighted benchmarks and orthogonal style factors, enabling investors to allocate risk budgets to alpha rather than factor or market exposures. This approach helps investors control market beta exposure and quantify the cost of alpha-seeking funds beyond desired benchmark and factor exposures.

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