What is Ex Ante Alpha?

Ex Ante Alpha refers to the anticipated or expected incremental return of an investment when adjusted for its risk. This concept is critical for investors who are looking to differentiate between returns generated by market movements and those attributable specifically to a manager's skill or investment strategy.

When evaluating an investment's performance, Ex Ante Alpha can help an investor gauge how much additional return they might expect to receive over and above a benchmark, given the amount of risk taken. This is particularly useful in alternative investments, where traditional risk-return metrics may not be as clear-cut. By predicting the potential future performance with the risk adjustments considered, investors can make more informed decisions about where to allocate their capital.

This understanding aids investors in assessing the value that active management brings, and it aligns closely with the objectives of investors who seek to achieve returns that exceed passive investment strategies.