Prime alpha: separating skill from luck in asset management

Alternative way to judge manager performance provides useful tool for risk managers

Measures of prime alpha offer a better way to identify talented managers

The conventional thinking about active management holds that reliably good stock-pickers, if they exist at all, are nearly impossible to find. Implicit in this sentiment is that if active managers do well, it's probably because they were lucky rather than talented. But maybe this verdict rests on the wrong measure of manager skill.

In plying their trade, active equity managers employ a handful of levers. One set of levers relates to the style or thematic exposures – for example, value, growth an