I tried telling a hedge fund manager, “You don’t have alpha. I can replicate your returns with a value-growth, momentum, currency and term carry, and short-vol strategy.” He said, “‘Exotic beta’ is my alpha. I understand those systematic factors and know how to trade them. You don’t.” He has a point. How many investors have even thought through their exposures to carry-trade or short-volatility “systematic risks,” let alone have the ability to program computers to execute such strategies as “passive,” mechanical investments? To an investor who has not heard of it and holds the market index, a new factor is alpha. And that alpha has nothing to do with informational inefficiency.
Most active management and performance evaluation just is not well described by the alpha-beta, information-systematic, selection-style split anymore. There is no “alpha.” There is just beta you understand and beta you don’t understand, and beta you are positioned to buy vs. beta you are already exposed to and should sell.
I don't find this very profound. If the carry trade or shorting the VXX is a beta trade and makes a risk premium, investors should be indifferent to it. The risk premium is an even trade of premium for risk (or rebate for insurance). He's assuming that most people would love to earn the returns from the carry trade or shorting the VXX, and I suspect he's right, but that's because it's not a risk premium, rather, it's simply an opportunity.
Ever since the small cap effect was discovered, people have been attracted to it as an asset class because it offered higher returns. Dimensional Fund Advisors started with a small cap fund. Now, if the 'risk premium' story were true, it would be just as interesting for investors to take the other side, to buy insurance against whatever risk these things were providing a return premium for (these other factors tend to have medians of zero, not 1 as in the CAPM beta). Such opportunities are never sold that way, and investors don't want to pay for these things by shorting them.