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09 August 2023

Alpha vs. Beta Part 2: Driving Investment Performance

This is the second in a two-part series discussing Alpha Vs. Beta. Please read the first post to review the difference between low beta and high alpha investment strategies. 

Market dynamics and investor expectations help drive the decision between pursuing low beta or high alpha strategies (or both). In a recent whitepaper, Low Beta, High Alpha? Yes!, and blog post, we explored the difference and complementary nature of diversifying with low beta and chasing high alpha investment strategies. Now, we’re looking at how optimizing operational performance can help drive investment performance.

Data Access & Operational Alpha

As we noted in our last post, managers need access to accurate and actionable information at scale to make informed strategic decisions. This includes real-time insights into portfolio positions, performance, and exposures, as well as timely data on price movements in the market. Also, managers require analytical tools to better understand the sources of performance and risk in their portfolios.

Optimizing efficiency and data integrity to mitigate the erosion of returns due to operational lapses is a critical factor in the success of low beta and high alpha investment strategies. The goal of operational alpha - which is more easily defined than achieved - is eliminating drag and data latency—ensuring that the back office is performing efficiently, and the front office has accurate and reliable data for decision-making. Firms require that these systems and processes are in place to execute decisions in the market with speed and efficiency.

Managed Services: Focusing on investment strategies

The volume of data generated from both external and internal sources is putting a strain on back-office resources and testing the limits of in-house systems. To mitigate the risk of operational bottlenecks, many firms are strategically building their investment expertise while partnering with outside experts and managed services providers for operational tasks.

Given the rapid pace of tech advancement and the rise of intelligent automation, a firm’s internal systems can quickly become a competitive disadvantage. The managed services model shifts the burden from a firm to the managed services partner— which is why it is critical that any prospective provider is committed to continual reinvestment in new technologies and has the track record to prove it.

Geneva: Proven Technology for the Life of Your Firm

Geneva is the proven solution for firms that require a high level of operational efficiency and easy access to real-time data. Geneva offers comprehensive instrument coverage, a full general ledger, and industry-standard integration tools that enable firms to manage complex investment vehicles, multiple investment strategies – be it low beta or high alpha, and tiered fund structures. With a modern, scalable, and flexible technology infrastructure, delegating operations to a specialist enables a firm to focus on investment strategies, opportunities, and decisions.

Whether a firm is pursuing low beta or high alpha strategies, a strong operational underpinning will make it easier to navigate uncertain markets, empowering managers with actionable insights and the capacity to implement strategic decisions at scale.

To understand the difference between low beta and high alpha strategies, read our previous post and download our whitepaper, Low Beta, High Alpha? Yes!