Hedge Funds: Alpha, Beta, and the New Investment Paradigm

In the wake of the worst financial meltdown since the Great Depression, many investors have begun to question the basic principles of investing that lie at the core of the financial industry. Diversification, the risk/reward trade-off, the separation of alpha and beta, the benefits of passive index funds, the ability to manage risks via asset allocation, and stocks for the long run have all come up short over the last three years. What should an investor do?

In this thought-provoking presentation, Dr. Andrew W. Lo, founder and Chief Investment Strategist of AlphaSimplex Group, LLC, provides a framework for understanding both the recent market gyrations and the bull market that led up to the recent crisis. By using evolutionary principles to explain investor behavior, Dr. Lo presents an integrated perspective in which behavioral and rational market dynamics can co-exist. He argues convincingly that existing models and methods of modern finance are not wrong, but merely incomplete, and must be updated to include more recent changes in our global economy and financial system such as the rapid growth of the hedge-fund industry, the emergence of new betas, and their empirical and theoretical origins. Dr. Lo will conclude his presentation with a discussion of what may lie ahead for investors, and the key lessons to take away from the recent past to better prepare for the future.