all alpha welcome alpha is a very important  concept in the hedge fund world investors  

seek alpha desperately hedge funds try to show  that they are indeed generating alpha and it's  

not luck or just market returns the industry is  obsessed with it look for example at the title of  

the conference so alpha is actually a mathematical  expression and well known in the investment world  

it's the excess return that is not explained by  the benchmark in other words alpha is a result  

of the skills of the manager or the kind of magic  touch if you want i'm not just playing for myself  

i'm playing for all shareholders what are the  skills how does that compare to real life hedge  

funds to answer i'm going to need the help of  another expert this time nicholas ravner from  

factory research who has that magic touch at axe  capital taylor when they spot that a factory that  

looks busy is in fact a fraud an article came  out on satellite detected discrepancies between  

chinese sites and what had been reported by  government statistics and after that they knew  

they were being watched so the trucks started  moving and ben kim when he manages to discover  

a merger before it's announced i think there's a  merger coming if not an outright purchase axelrod  

of course when he understands that what looks  like a merger arbitrage opportunity is in fact  

he wrote the story now he's out which means you  need to be out in fact short so clearly there  

are skills involved if you look at each of those  the returns are not linked to the market going up  

or down this alpha let's start with ben kim i've  been tracking rental car usage in business cities  

developing relationships with managers there he  has to build relationships he has to crunch a lot  

of data to find the information that this taylor  they're doing web research they're looking at  

satellite data find out which satellite company  krakow uses ar metrics assuming krakow would be  

the biggest user on the most viewed images you  deduce that's what he's been looking at and then  

actually wrote pages of 1252 when everyone was  at lunch which tells me they wanted it to be  

missed he's got access to all the information  that's stored in his brain in all of them we  

see there's an informational advantage they also  know what to do with the data or the information  

but if they didn't have it in the first place they  couldn't do anything so once you have that the  

decision process is actually clever but it's also  straightforward don't go long go short if there's  

dutch people at the airport it's going to be  a merger the trucks are show for the satellite  

short the stocks so how realistic is it let's ask  Nicolas the information asymmetries have largely  

been arbitraged away and the reason for that is  quite simple because if you think about public  

equities it's very difficult for fund manager  at jp morgan to have a competitive edge over  

someone at goldman sachs because they have the  same data bloomberg terminal they have the same  

access to management and so on how are  they supposed to create our performance  

what that means is that what we see in  billion is not really what's happening  

or very very rarely axe capital is of course  our favorite hedge fund it's very special  

but there is a Ben Kim and a taylor mason at  other firms and in reality it's not about having  

a Ben or a Taylor their discoveries  would mainly be done by data scientists  

using computers and machine learning algorithms  because data is becoming better and technologies  

become better so nowadays it's quite simple  you can go to any you know data provider find  

out there's a certain portfolio or certain fund  managers you have alpha if you think back 20 years  

it was a much more difficult exercise so we can  dissect the fundamentals performance very finely  

and find out is there really something unexplained  the fund manager is doing or is it simply you know  

like you know something out of alternate  beta space or some sort of mac exposure  

that just wasn't measurable before today it's  easier to figure out what drives the performance  

and to replicate it and that makes it really hard  to really create alpha and of course going forward  

i think like from an energy perspective this  will become even tougher right because data will  

continue to improve and technology will continue  improve so i think the power partially is shifting  

from the fund managers to the allocators results  and optics my job's to spot a fund manager taking  

his eye off the ball before he strikes out is  the effect of being empowered by data technology  

and factors in another episode and you can  also sign up for my course if you want to dig  

deeper into all those components thank you for  watching please subscribe comment if you agree  

disagree or if i should analyze another scene