"[The hedge fund managers] hunt for market variables called risk factors that often lead to excess investment returns, or premiums, according to people familiar with the fund.
Some, such as a measure called the value premium -- the difference between the return of a group of stocks with high book values relative to their prices and that of a group with low book value-to-price ratios -- have been used by other money managers for years. Goldman Sachs has identified more than 20 new risk factors, which it doesn't disclose, even to its own investors.
Carhart never reveals the secrets. Old friends and people who've invested in the fund say they're not really sure how it works."
A few class-related things of note:
First notice how the risk factors work. We were just speaking of the value risk factor this past week. Also the secrecy that fund managers want/need. Interesting article. (THANKS GH!)