The Multiplicative Indictment
How much alpha does your hedge fund need to beat the index? You supply the assumptions. The arithmetic does not negotiate.
Market — feeds every tab
Defaults
These are starting values. Move any slider; the indictment is yours.
- 10-year hold
- 1.5-and-20, pod-level netting on, pass-through skipped
- ½σ² variance drag — conservative if the book is left-tailed
- Monte Carlo seed 20260910, 10,000 shared draws
- Cascade impact k = 0.09
- Shiller real total returns, 1871–2023
Tab 1 · Fee decomposition
This book needs 7.7% annual alpha to match the index
From gross alpha to net geometric
Dashed line is unlevered-beta geometric — the index match. Last bar lands at net geometric.
Net geometric vs. unlevered beta
Fee integral — transfer vs. deadweight
Transfer — cumulative fees as % of initial capital.
Deadweight — fees compounded at the equity rate, less excess delivered.
The ½σ² drag formula is a second-order approximation, exact under lognormality. Under negative skew (which this essay argues is endemic to long-short), the true drag is larger. This makes the break-even alpha estimate conservative. See Tab 3's skew slider for the higher-order correction.