I am usually surprised by the almost manic attention given to alpha these days.  That may sound trite in present financial circumstances, although volatility in the markets is the mother of invention and therefore competitive alpha.  But it seems to me that scratching about in the field for a few basis points to outstrip your competitor's alpha performance - while you could be reaping several hundred basis points of low hanging alpha elsewhere, is somewhat puzzling.

Regular readers already know that my personal specialisation is tax (ugh I hear you cry!) and I never thought I'd ever hear myself say it, but tax can be interesting, especially when it forms such an important element of fund performance.  Fascinating actually, especially when you look at alpha as benchmarking the over-average. Ever heard of not seeing the wood for the trees?

All these asset, fund and investment managers are increasingly investing cross border - 16% increase a year at the moment according to some sources. And what do we find across those borders...tax.  And is all tax lost to the tax man forever - no!  And what sort of performance difference can tax optimisation do for a fund manager? - 150+ basis points!  The alpha is out there alright, its the small forest of low hanging fruit you look past in order to see the hard worked fields of everybody else's alpha just beyond.

And how many fund managers walk straight past the low hanging fruit to slave away at the fields - most. Of all the tax on cross border income deducted in foreign countries each year, $200 billion could be recovered and less than 7% of that ever is! So if you're an investment manager and you want easy alpha - you're probably standing in it.

Standing in it and not knowing its there is bad enough.  But once you do know about it, failing to take action is definitely not where you want to be, on several counts, not least the competitive.  With over $100 trillion in AUM and maybe 35% of it cross border, the solution has to be STP and that means ISO and SWIFT. They're two of the three legs of the alpha tripod. Those low hanging fruit are, well, fruit, and they're low, but as we can gather from the numbers, most either don't know the fruit is there or if they do, they don't know how to pick it very well. The third leg of the tripod is knowledge. For those who have an interest, try looking up V-STP.

To put it in context, look at the market's recent market liquidity problems, all the consolidated written off sub-prime debt in the world could have been offset every year for the last five years, if the recovered tax for investors had been at 97% instead of 7%.

As for the alpha - its a competitive world out there. Funds need good fruit pickers and good fruit pickers need to be able to see the fruit in order to pick it.