Investors have three ways to generate returns in tradable markets.

1. Invest in deposits or government bonds to earn a risk-free rate of return (time value of money)

2. Take on various market and factor risks to earn the respective risk premia (betas)

3. Find inefficiencies and dislocations in markets and capture this excess returns (alpha)

Differentiating Alpha and Beta

Alphas are time-varying pockets of inefficiencies in the markets that can be profitably exploited. To access alpha you need to be in the right place at the right time with the right skills. Alpha is NOT undiscovered beta. Alpha profits come from the technical skills to exploit market inefficiencies, betas are the premia you receive for bearing systematic (non-diversifiable) risks.

Alpha and beta are fundamentally different. They are not fungible. They can and ought to be considered separately.

Beta

Beta will increasingly come from hyper-efficient financial engineering firms (think Vanguard, Blackrock) that build engines to efficiently create exposures to these betas for investors. These exposures will be available in various very low-cost products such as ETFs.

Alpha

As I've noted before, alpha is valuable for the economy as it is the only driver for keeping prices near intrinsic value and hence improving the efficiency of risk and capital allocation.

At Noviscient, our focus is purely on alpha. We are constantly looking for and building a pool of genuine alpha-generating firms to create pure alpha products for our investors. So we think deeply about the sources of alpha.

This is what we know:

• Alpha is difficult to find so we need sophisticated identification technologies

• Competition for alpha means it decays so we need to be able to access it quickly and efficiently

• Exploiting alpha often requires expensive capabilities so we want to offer robust execution and risk infrastructure to help defray costs

As such, we spent the last eight years building a platform focused on these three requirements to be able to offer investors scalable access to alpha from all around the world.

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