How do you define the term "Alpha" when referring to Investment Managers?

I felt this article would be of interest to you, and satisfy your question regarding the definition/clarification of the term "Alpha".
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Sharath Sury Explains The Alpha to Eager Finance Enthusiasts
and Focused Students Online
Posted by Everything-Finance.net STAFF on 3/6/10

SANTA CLARA, Calif. March 6/Everything-Finance.net/ -- With many finance students and enthusiasts eager to solidify the concepts of Alpha and Beta within the context of the recent Alternative Investment Summit chaired by Mr. Sharath Sury, many followers have shown continued interest online, posting comments onvarious blogs that reveal an eagerly awaiting clarification of this elusive Alpha by an experienced, esteemed professional like Sharath Sury - an internationally recognized expert in Risk Management and Asset Allocation. As a former VP at Goldman Sachs, and CEO Emeritus of S4 Capital, Sharath Sury handled very complex investment portfolios of some of the nation's most wealthy families and individuals.

Mr. Sury is has been recognized by numerousnotable magazines as one of the top professionals in his field. Also a revered university instructor, Professor Sury has established a forum for the research and discussion of new developments in economics and finance, with an emphasis on risk management and innovation. Who better to answer our audience's questions than Mr. Sury, himself? Everything-Finance.net now has the exclusive, wealth manager's definition of Alpha by Professor Sharath Sury, in his own words:

"In any investment strategy,there are essentially three components to the ex-post return: market relatedexposure (beta), manager skill or 'risk adjusted excess return' (alpha), and randomness. The goal of any active investment manager is to maximize alpha tothe extent possible as this is the portion of the return that is attributableto the manager's skill or strategy. In most cases, it is extremely difficult toknow what alpha a manager will produce 'before the fact (ex ante)', however,there are certain clues that can help provide guidance on whether a manager iscapable of delivering alpha. Among these maybe: superior execution, highlydeveloped capital market analytic skills, superior processing of public information, ability to exploit systematic mispricings, etc. These and other such sources of alpha are colloquially referred to as 'edge'. Every successful investment manager always strives to maximize their edge, and thus their alpha."

Professor Sharath Sury has also generously extended his hand to Everything-Finance.net, offering his expertise again soon! In the near future Sharath Sury will answer, conceptually clarify, and define additional special investment terms that have significant importance in current and future economic climates. Special thanks to Professor Sury for taking the time to briefly analyze and precisely definethese terms in efforts to help students (and enthusiasts, alike) avoid further confusion on what can already be very complicated subject material. This is especially true -- as we've found with the Alpha -- if you're not careful about where, and in what context, you find a certain definition.

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About Sharath Sury - Founder and Executive Director of the SCU/Sury Initiative for Financial Innovation & Risk Management (SIFIRM) at Santa Clara University in California’s SiliconValley, Sharath Sury devotes his time and energy to bringing together thought leaders who can address the development of real-world solutions to the current economic climate. Sharath Sury has worked with some of the brightest and most experienced experts in finance and risk management and aims to bring a greatersense of ethics and responsibility to his profession. Through his efforts, Professor Sury has established this invaluable forum for the research and discussion of new developments in the world of economics and finance and has attracted a renewed spirit of innovation to the industry. Sharath Sury also serves as an Adjunct Professor of Economics at the University of California and Adjunct Professor of Finance at DePaul University in Chicago. Sharath Sury's interest and experience in wealth management began as an Associate and later Vice President at Goldman, Sachs & Co. He later founded and worked at S4 Capital, where he earned numerous accolades for his work.

SOURCE Everything-Finance.net

http://blog.everything-finance.net/2010/03/06/exclusive-sharath-sury-explains...

Copyright 2010 EVERYTHING-FINANCE.net

Posted by Everything-Finance.net at 3/6/2010 11:13 AM

Hope this was of help to you Rebecca!

--- Assistant To Professor Sharath M. Sury