Alpha
Private Equity glossary · Private Equity Fundamentals
Definition
Excess return above a benchmark, attributable to manager skill.
Alpha in plain English
Imagine two runners on the same track: one is the 'benchmark' (say, the whole stock market's average return), and the other is your fund manager. Alpha is how much faster your manager ran than that average — the extra return that comes from genuine skill, not just from riding the market up. If the market returned 8% and your manager returned 11%, the 3% of 'beating the market' is the alpha. It matters because it's the only part of a return you're really paying a manager for; anything they'd have earned just by matching the market, you could get almost for free from an index fund.
Learn these first
Related Private Equity terms
Private Equity practice questions · Private Equity flashcards · Private Equity study guide