Victor DeMiguel, from London Business School, will present his research. 

Rethinking Mutual Fund Performance: From Traditional Alpha to Achievable Alpha

Mutual-fund performance is traditionally measured by alpha, reflecting the utility gain of an unconstrained investor who has access to the fund in addition to the bench-mark factors. Yet 88% of fund assets are held by retail investors, who are e˙ectively shortsale constrained. We show that their relevant performance measure is achievable alpha, computed using only factors with strictly positive weights in the constrained benchmark portfolio. Empirically, achievable alpha and value-added reveal weaker ab-solute performance and starkly di˙erent rankings. Achievable alphas also predict fund flows—especially during market turmoil—and indicate that funds are far less scalable than implied by traditional alpha.