In Cliff’s latest, he surprisingly says it can be appropriate for hedge funds to have betas of 1. Why is it surprising? Because Cliff gained early industry notoriety from his 2001 paper “Do Hedge Funds Hedge?”, in which the short answer was not nearly enough, and on average they didn’t add value after fees. In this post, Cliff discusses how deliberately adding some beta onto a diversifying alt may in fact be a good idea for capital efficiency. He shows that equitizing an alt strategy—i.e., adding an equity beta 1 futures position to it (but not at an alpha fee)—may be more capital efficient, as then investors could invest in the alt without reducing equity exposure. Additionally, high-volatility alts tend to be more capital efficient, as investors need to invest less in them to move the dial. Of course, the two can work quite nicely together – more aggressive and equitized alts. https://bit.ly/3DYCLTZ
