Decompose every manager's returns into market beta, factor exposures and true alpha. Detect hidden beta. Catch style drift early. Pay for skill, not for factor exposures you could get for 5 basis points.
Factor Analysis & Hidden Beta
True alpha vs cheap factor exposure
The problem
Most "alpha" managers are just factor-tilted. Pay 2-and-20 for skill — not for the value factor you can replicate for 5 bps.
Decompose returns
Market · value · momentum · size · quality
Detect hidden beta
"Market-neutral" funds with 20% net long
Flag style drift
Rolling regressions · 12/24/36-month windows
Headline returns tell you nothing useful. Factor decomposition tells you what you're actually buying.
Decompose returns into market beta, factor tilts and idiosyncratic alpha. See whether the manager is generating return through skill or through replicable factor exposure.
A market-neutral fund running 20% net long the S&P will look excellent in bull markets and lose half its assets in a crash. Hidden beta detection surfaces this from the return stream.
Rolling factor regressions over 12, 24 and 36-month windows flag when a manager's exposures have shifted from baseline. Essential for ongoing monitoring.
Fama-French 3 and 5-factor, Carhart 4-factor, AQR 6-factor, custom user-defined models, and Sharpe returns-based style analysis for hedge funds and multi-asset portfolios.
Aggregate factor exposures across every manager in your portfolio. See your true portfolio-level beta to each factor — not just what each manager claims individually.
Quantify exactly how much idiosyncratic alpha each manager contributes after stripping out factor exposures. Pay for skill, not for cheap factors.
A few real-world reasons institutional risk teams treat factor analysis as non-negotiable.
Factor analysis software decomposes a fund manager's returns into systematic factor exposures (market beta, value, momentum, size, quality, etc.) and the residual idiosyncratic alpha. It tells you whether the manager is generating returns through genuine skill or simply through exposure to factors you could replicate cheaply.
Hidden beta is undisclosed market exposure inside a fund that markets itself as market-neutral, absolute-return or low-correlation. A fund running 20% net long the S&P will look brilliant in a bull market and disastrous in a crash — but the marketing materials may not mention it. Factor analysis surfaces hidden beta from the return stream itself, before it costs you money.
Style drift is when a manager's factor exposures change over time without disclosure. We run rolling factor regressions over 12, 24 and 36-month windows and flag when exposures shift materially from baseline. Crucial for ongoing monitoring of multi-year mandates.
Fama-French 3-factor, Carhart 4-factor, Fama-French 5-factor, AQR-style 6-factor (adding low-beta), custom user-defined factor models, and returns-based style analysis (Sharpe 1992) for hedge funds and multi-asset portfolios.
Yes. Hedge fund managers use AlternativeSoft's factor analysis to articulate their alpha story to allocators ("here's what we contribute beyond cheap factor exposure"), to monitor unintended drift internally, and to populate due diligence questionnaires from allocators.
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