In Delivering Alpha, Hilda Ochoa-Brillembourg shares her experiences managing financial assets for several institutional and private clients over a three decade-long career. Structured as a series of topical discussions, the book attempts to answer the question: How should a money management operation be designed and managed so as to generate superior investment returns? Ochoa-Brillembourg seems to be well qualified for this task, having produced an enviable level of long-term outperformance in her own company. Indeed, many of her insights involving topics such as asset allocation strategy, trading alternative assets, and firm governance principles are very illuminating. On the other hand, the order of the discussion is repetitive, quite poorly organized (e.g., illiquidity risk is described in a number of chapters), and often superficial, which greatly limits the effectiveness of the project. The biggest impediment, however, is that she has not really made a clear-cut choice in her target audience—the board-level fiduciaries who manage the organization or the investment staff who manages the assets.

Indicative of this expositional problem is the very loose way in which the central concept of alpha is defined. Simply put, alpha is the difference between the actual return a portfolio generates and the expected return it should have earned. Since the first term is measurable, calculating alpha really comes down to how expected returns are measured. Economists tend to specify a formal risk model (such as the CAPM) for this purpose, while practitioners typically use the return to a benchmark index (or series of indexes) or the average return generated by a peer group. The main difference between these approaches is that the former measures the risk of the portfolio very precisely—hence the notion that alpha is a risk-adjusted return—but may not represent a directly investable alternative. Conversely, comparing actual returns to those of a benchmark, which is often a viable alternative to the manager being evaluated, does not take investment risk into account explicitly.

Unfortunately, both definitions of alpha are used interchangeably throughout the book, which makes it difficult to understand how a portfolio’s outperformance is supposed to be delivered. In fact, the text is largely silent on exactly how someone should design a portfolio to beat expected returns, although there are a few examples of macro-oriented trades the author made in the past to help her firm achieve its results. Essentially, alpha comes from two types of active decisions: tactically adjusting the asset class weights in the portfolio or selecting superior securities within those asset classes. This fact is acknowledged with the following statement near the end of the book: “The divergence between sentiment and fundamentals is the most reliable long-term source of alpha.” However, other than some occasional vague directives that one should consider investing whenever securities are misvalued, Ochoa-Brillembourg never really explains how we might make those assessments.

Several other topic discussions are flawed as well; I’ll mention two here. The author begins the book with a consideration of something she calls “fit theory”, which is just of way of saying that investors should consider how any potential new investment will affect an existing portfolio. This is not a new concept and she does not provide enough detail for the reader to implement the rule-of-thumb formula she suggests. (In fact, the high-yield bond example she offers as an illustration is not helpful because the correlation coefficient necessary for the calculation would not have been available at the time of the investment.) Particularly surprising was the extremely limited coverage on the topic of how to select (or terminate) the outside managers who are responsible for actually investing the asset class-specific portfolios. This is crucial because for an institution that follows the “external manager” model, all of the alpha delivered by security selection will come from these outside agents. Despite stressing that her firm was a pioneer of what is by now an industry-standard approach, the author devotes just two very brief chapters (i.e., about five pages each) to this essential subject.

Of course, Delivering Alpha also contains a lot of good information, even if those discussions are not necessarily integrated into a cohesive whole. Notable among these topics are the process for creating an investment policy statement, how to manage portfolio volatility, responsible employee compensation arrangements, and a company’s organization and culture. The problem, though, is that these insights appear somewhat randomly and they are often interspersed with other points that are either misplaced, redundant, or far too terse to be useful. Perhaps the best way to assess this volume’s potential impact is as follows: If you handed the book to both a trustee and a staff member at an institutional investment firm, would either find a sufficient amount of information to execute their fiduciary duties effectively (to say nothing of producing superior investment performance)? Sadly, I think that the answer to that question is very likely “no”. As such, despite containing many thought-provoking points, the work ultimately falls short of its intended goal.