[savanaly]

>This is called a "relative return" strategy. Suppose the benchmark falls 70% and the hedge fund loses 50%. Your hedge fund manager has lost half your money, but has beat the benchmark by 20% (i.e. "positive alpha"). How does a fee based on alpha work in this case?

I'm not who you're responding to, and I've never heard of "relative return" strategy, but it makes perfect sense to me and your hypothetical poses no confusion in my eyes. If the benchmark (agreed upon in advance of course) would have caused my money to go from M to B by the end of the year, and the hedge fund actually caused my money to go from M to H, then they get paid some percentage of H - B. It's completely irrelevant what M is in relation to H or B.