What do Alpha Drivers aim to achieve?

• A. To replicate the benchmark returns
• B. To expose active return factors
• C. To minimize returns unrelated to benchmark
• D. To align closely with market volatility

Answer: (B)

Alpha Drivers aim to expose active return factors, which refers to the identification and analysis of the elements that contribute to an investment's performance relative to a benchmark. By focusing on these active return factors, investors seek to uncover distinctive sources of return that can provide excess performance over the benchmark.

This approach is crucial in alternative investments where investors are often looking for unique opportunities and strategies that differentiate their portfolios from passive benchmarks. Alpha drivers help in understanding the risks and rewards associated with active management, enabling investors to make informed decisions to enhance their portfolio's performance.

In contrast, simply replicating benchmark returns would imply a passive investment strategy, while minimizing returns unrelated to the benchmark does not focus on uncovering additional value-added exposures. Aligning closely with market volatility relates more to risk management rather than actively seeking to uncover sources of alpha. Thus, the goal of Alpha Drivers is distinctly oriented towards exposing and harnessing active return factors.