Should Hedge Funds Hedge?: Why Some Alts Should Have a Beta of 1.0

For advisors and investors, the core message is not that “beta is bad,” but that paying alpha-level fees for beta exposure remains a serious mistake. Fairly priced beta is a powerful long-term engine of wealth, while genuinely uncorrelated alternatives can improve portfolio resilience but often fail to “move the dial” when run at low volatility and small allocations. The more compelling opportunity lies in capital-efficient structures that combine higher-volatility, uncorrelated alpha with explicit, low-cost market beta, so investors keep their equity exposure while layering on differentiated return streams.

This approach can enhance both expected returns and risk-adjusted outcomes by effectively adding the alternative “for free” from a capital-allocation standpoint. The trade-off is behavioral rather than mathematical: these strategies demand tolerance for a bumpier ride and strong governance to stay invested through inevitable drawdowns.