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Alts: Volatility Is Not Your Enemy

If returns are uncorrelated and positive.

Nicolas Rabener
10 min read
20 Apr 2026

SUMMARY

  • The less correlated an alternative strategy is, the higher its volatility should be
  • Enables more efficient capital allocation
  • However, only if the returns are positive

INTRODUCTION

Prior to 2000, the hedge fund industry managed less than $500 billion in assets, and most funds reported performance quarterly or annually. Much like private equity, this infrequent reporting had a smoothing effect on returns – the intra-month and intra-quarter swings that inevitably occurred were simply never visible to investors.

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