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Executive SummaryAlpha gauges returns against a risk-adjusted benchmark, but it’s often misunderstood.Accurately measuring alpha requires understanding relevant risk factors, including leverage, liquidity, volatility, the proper time horizon, and valid benchmarks.Distorted measurements of alpha are more common with private assets and niche strategies due to the use of unsuitable benchmarks and the omission of relevant factors.Active management has historically been more successful in generating

Executive SummaryLong-horizon asset class returns are reasonably predictable using simple models of expected return.However, equity returns over the last decade far exceeded model-based predictions.We posit a framework for the drivers of potential mean-reversion in equity returns.We believe increases in real bond yields and a decline in corporate profit growth are the most likely candidates to prompt an equity market correction.Download PDF

Although most research on private assets asks whether returns are commensurate with risk, we focus on the value of the smoothed volatility profile of private assets that are not marked to market. We find that the smoothing of returns in private equity has a substantial impact on headline volatility: The true economic volatility of private equity is close to 30%, rather than a headline number of 10%. We then quantify the value of the illusion of low volatility with a few thought experiments. Usin

SummarySurging U.S. consumer prices have energized the debate about inflation but our JulyResearchpaper, “Assessing Inflation: Theories, Policies and Portfolios,” argues that the debate over inflation generally suffers from a lack of definition – and, therefore, comprehension.Currently, we believe there are fatter inflation tails than the market has expected. But longer term, there is a high probability that inflation will be contained.Nonetheless, for investors who wish to hedge against infl