Alternative beta: The must-have alternative

Jerome Abernathy, Stonebrook Capital: Investment banks don’t want to undercut their biggest customers

Alternative beta is becoming the must-have product on Wall Street. Given that most hedge funds derive the majority of their returns from beta, rather than manager skill (alpha), replication of this beta by investment banks and other institutions, at lower fees than those charged by hedge funds, is naturally a tempting offer for investors. Alternative beta tends to outperform during liquidity crises such as that experienced this summer, because many hedge funds trade illiquid securities.