![]() ![]() In simple terms, if a portfolio has an alpha of +5, it means that it outperformed the S&P index by 5%. Alpha is used to measure how well a fund manager performs. Alpha: The excess return that a hedge fund earns relative to the performance of a benchmark index or risk-free investment.For example, Bobby Axelrod buys a 4.9% ownership stake in YumTime Bakeries in order to force management to fire the incompetent CEO and to eliminate corporate inefficiencies which were costing shareholders for the past eight years, all while executive compensations had soared 300% over the same time period. By so doing, the activist investor can replace management or put pressure on it to significantly change its operational strategies with a view to driving the share price up. Activist investor: An individual or a group of individuals who purchase large quantities of a company’s stock in an attempt to gain control of a sizable number of the company’s voting seats. ![]()
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