Performance - November 18, 2005

EuroPerformance-EDHEC Alpha League Table launched on 15th November

Alpha League Table Methodology

Alpha is the core element in evaluating investment management

At a time when passive investment offerings are becoming more prevalent, it seems indispensable for both the asset management industry and investors to be able to identify talented active management “producers”, who, over and above the returns procured naturally by the fund’s long-term exposure (beta) to market and style risks, are capable of providing their clients with outperformance (alpha).

The calculation of alpha, i.e. the outperformance obtained by the manager compared with the “normal” returns procured by exposure to market and style risks, presupposes that the exposures to risks (the betas) are determined with accuracy. The benchmark that is representative of the risks that were actually taken by the manager is determined by analysing the fund’s returns through a multi-index regression onto the styles (the Nobel Prize winner William Sharpe’s Return-Based Style Analysis method1).

For the first time in Europe, a ranking method is genuinely striving to distinguish the skill related to active management (alpha), from the other components of performance, which are related to the market (beta).

The alpha measurement is drawn from the EuroPerformance/Edhec Style Rating2

The Alpha League Table is based on the referential Style Rating database developed by EuroPerformance and Edhec.

By retaining the funds rated 4 and 5*, in other words funds that have strictly positive alpha, the Alpha League Table is the first European ranking that allows asset management firms to be rewarded for their capacity to create alpha in their “equity” management.

The EuroPerformance-Edhec style rating is constructed on the basis of three criteria:

  • Risk-adjusted performance (or alpha)
  • Extreme loss potential (Value-At-Risk)
  • Performance persistence
The ratings integrate the most advanced conceptual and technical research. The Style Rating measures the quality of active management and provides a score that ranges from 1 to 5 stars.

The 1 and 2-star categories group together funds that have not outperformed their management objective on average. The 3-star category contains funds whose performance is close to the returns of the market in which they invest. The 4 and 5-star categories include funds that have outperformed over the analysis period. This excess performance is the fruit of the manager’s decisions: active stock picking and/or market timing. Among the funds that excel, some provide a significant gain frequency, which characterises persistence of outperformance. These funds are distinguished with the maximal score of 5 stars.

Presentation of the Alpha League Table

The Alpha League Table provides an annual ranking of the best European asset management firms. These annual rankings are published every year on the basis of the fund performance as at March 31st for each of the management companies that act as asset managers in a European country.

In addition to these annual rankings, the Alpha League Table includes a special focus each year on 4 zones in Europe: France, the United Kingdom, Italy and Spain, and Luxembourg and Switzerland. The publication of the rankings is spread out over the year on a quarterly basis.

The rankings are put together on the basis of a score relating to each management company’s alpha intensity.

The Alpha League Table score: alpha intensity

The goal of the Alpha League Table is to be able to rank asset management companies on their ability to deliver alpha frequently: their alpha intensity.

The alpha intensity is a synthesis of two indicators calculated from information in the EuroPerformance-Edhec Style Rating:

  • The frequency of alpha in the range, which is expressed by the ratio of the number of funds with a strictly positive alpha (4 and 5 stars in the style rating) to the total number of funds rated for the same asset management company.

  • The average alpha, which corresponds to the average percentage of alpha calculated for the funds that have a strictly positive alpha (4 and 5 stars in the style rating).
The alpha intensity score for the Alpha League Table is the product of the frequency of “alpha” funds by the average alpha.


If company X displays a frequency of 30%, i.e. 3 funds out of 10 are rated 4 or 5 stars, and the average alpha of these funds (alpha >0) is 4%, then the score will be 4% * 0.30 = 1.2%.

In the same way, if company Y displays a frequency of 50% and an average alpha of 3%, its score will be 3%* 0.50 = 1.5%.

The awards listing

Each month, rankings are established on the basis of this score. Only companies that have participated in the 12 monthly rankings are retained for the annual rankings.

In the present case, the calculations cover the period from July 2004 to June 2005.

In the final awards listing, the companies are ranked according to the average of their 12 monthly scores.

The asset management companies selected for the Alpha League Table

All companies that carry out an investment management activity and are registered and approved by the regulatory authorities in the zone referred to in the awards listing are eligible for the Alpha League Table.

In the case of France, foreign companies that only have a sales activity in France are excluded. However, for companies that are registered and approved, all of their funds, both managed and marketed, are selected, irrespective of the country in which the fund is domiciled.

Each management company that has regulatory approval competes on its own behalf. Nevertheless, certain organisations, for which the equity management team is shared with another company within the same group, have been grouped together under the main name.

The companies with regulatory approval must have at least 4 funds rated in the EuroPerformance-Edhec Style Rating to compete in the Alpha League Table.

The funds selected for calculating the score

Equity funds are eligible for the Alpha League Table on condition that they are included in the EuroPerformance database and have a score in the Style Rating, the rating system developed by EuroPerformance and Edhec. For this, they must have at least three years of historical data and fewer than two returns missing over the alpha calculation period (156 weeks) and not belong to one of the following categories:

  • Gold and raw materials
  • Real estate
  • Emerging countries
  • Emerging markets equities
  • Emerging European equities
  • Latin American Equities
  • Particular Asian Equity Zones
  • ETFs and all mutual funds that carry out index management
The population selected

There are 213 management companies that are registered and approved in France and carry out the activity of asset manager for the “Equities” class (as at June 30, 2005 – the calculation date). They manage slightly more than 1,200 mutual fund units in the Equities class. On that basis:

  • 857 fund units are analysed in the Style Rating (71%)
  • 822 fund units receive a score of 1 to 5 stars in the Style Rating (68%).
The sample thereby constituted for the Alpha League Table covers 68% of active management in the “Equities” class in France. This coverage and the method used give the Alpha League Table the levels of representativeness and robustness required to be considered reference rankings.

Alpha League Table France 2005

The top 10 in the Alpha League Table France 2005 can be found in the following table (for the full list of 25, please click on the Alpha League Table documentation attachment below):

RankingGroupCompanyAverage Alpha (%)Alpha Frequency (%)Final Score (%)
1Financière de l'EchiquierFinancière de l'Echiquier12.7440.005.05
2Fortis GroupFortis Investment Management8.5925.002.15
3HSBC GroupSinopia Société de Gestion4.7835.501.67
4La Compagnie Financière Edmond de Rothschild BanqueEdmond de Rothschild AM SA3.8635.441.35
5La Financière AtlasAtlas Gestion8.8915.181.35
6Banque Martin MaurelBanque Martin Maurel3.9929.581.16
7State Street Bank (State Street Corporation Group)State Street Global Advisors1.7757.141.01
8CCF HSBC GroupHSBC Investments (France)3.8918.180.69
9Aviva GroupAviva Gestion d'Actifs1.7534.010.58
10Generali GroupGenerali Finance3.2519.410.56

1 “Asset Allocation: Management Style and Performance Measurement”, W.F. Sharpe, Journal of Portfolio Management, Vol 18, winter 1992, pp 7-19.

2 For the complete alpha calculation methodology: “EuroPerformance/Edhec Style Rating Methodology, Alpha Measurement”. This methodology is available on www.stylerating.com.

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