Will weight of money push down alpha returns?
Investors are becoming concerned that ever-increasing capital flows into thehedge fund industry could wipe out the arbitrage opportunities the funds rely on.But hedge fund managers are confident they can still provide the expectedreturns.
Reports of overcapacity and a drying up of arbitrage opportunities continue to blight the hedge fund industry. In October, JP Morgan released a much read and commented on report entitled Have hedge funds eroded market opportunities? Other reports, notably from investment management company Bridgewater Associates, suggest many hedge funds are failing to generate any alpha and are instead “packaging up beta and selling it at alpha prices” (see box).
JP Morgan says that as hedge funds grow larger
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