We have witnessed the end of the “Alpha Winter”—a period marked by suppressed traditional sources of alpha—and the beginning of a new season of opportunity. As market conditions continue to shift, the environment is once again conducive for hedge funds to thrive.
After analyzing 30 years of J.P. Morgan Alternative Asset Management (JPMAAM) hedge fund platform returns*, we identified three primary drivers of hedge fund alpha: risk-free rates above 2%, moderate-to-high equity volatility, and low intra-stock correlations. The period from 2011 to 2019—which we refer to as the Alpha Winter—was a historical anomaly, as extraordinary monetary policy simultaneously suppressed all three factors for an extended period. Since 2020, market conditions have shifted, more closely resembling the environment that supported strong hedge fund outperformance prior to 2011. This has coincided with a notable resurgence in hedge fund alpha, with excess returns over equity beta nearly doubling since the end of the Alpha Winter—reaching over 7% per annum since the start of the new regime.