Latest news

Back to articles

Time is Money - Alpha Generation

As we emerge from Covid-19 in a surprisingly positive position, with investor confidence in hedge funds high and plenty of capital flowing, alpha generation is still high on investor priorities. If hedge funds are to retain their fee structures, they must do their best to deliver alpha to prove they can not only reduce risk but deliver returns in a volatile market. For new and emerging managers, generating alpha is even more important in the initial phase, building that crucial track record to take you forward.

Active managers will be successful

Some industry commentators believe that active management alpha will be key to success in 2021 as beta driven momentum slows down. An inflationary environment often leads to investors rotating their choice of sector and asset classes, which can be an opportunity for alpha generation amongst agile, active managers.  We have seen this in the number of conversations we are having with new managers looking to launch concentrated equity portfolios to take advantage of this current environment. 

But active management and alpha generation takes time and effort, something most hedge fund principals are short of. Being pulled in lots of directions, it can be easy to spend less time focusing on the investment strategy and alpha generation than is necessary. Has a manager ever been criticised for spending too much time on alpha generation?

Outsourcing could free up time for alpha generation

What non alpha generating activities do you undertake that realistically, could be done by someone else?

If you could outsource some of this activity, like setting the IT strategy or pulling together the firm’s governance controls and procedures, freeing up just 10 hours a month, those 10 hours could be put to much better use. Just 10 extra hours spent on research and active management could enhance your ability to generate alpha or mitigate risk and could possibly lead to a small increase in performance. Even a 10bps performance increase monthly could have a huge impact. On a $50m fund charging a 20% performance fee, this small increase could add an extra $120k a year to your fees. One small change could add significant figures to your bottom line and help you build your track record.

Isn’t that worth some consideration?

OSMO can help you reduce the time spent on essential operations tasks.  Time that could be better spent adding value for clients, generating positive returns, resulting in increased revenue for your business.

Back to articles