How Direct Alpha Methodology Overcomes Performance Calculation Limitations

We’ve added Direct Alpha methodology to Preqin Pro to help investors with their search for top performing managers 

The Direct Alpha method was introduced in 2014 by Oleg Gredil, Barry Griffiths, and Rudiger Strucke. The concept is not dissimilar to KS PME, as it uses the same method to calculate an IRR, which is then compared to the fund-level IRR. However, the difference between KS PME and Direct Alpha is that outperformance or underperformance is quantified by calculating the compounded cash flows, in addition to the fund NAV. 

Of all the PME performance calculation methods, it is only Direct Alpha that seeks to overcome the limitations by providing as close to an exact number of outperformances as possible, rather than giving an approximate value of outperformance. While no performance measurement can be viewed as perfect, Direct Alpha goes furthest in answering the many questions regarding alternative (but still useable) metrics.

Preqin is committed to providing the most accurate measures of performance possible. Direct Alpha is an important addition to the ‘toolkit’ for those investors that might need additional direction in their search for a manager that can consistently generate positive returns, over and above whichever benchmark they or their investors choose to use. That’s why we’ve added the Direct Alpha methodology to Preqin Pro, allowing you to analyze the industry’s most comprehensive and transparent fund performance dataset. Get in touch with us today for a free demonstration.