To understand hedge funds, you need to better define alpha

Hedge funds are supposed to be alpha producers; however, the definition or description of how alpha is produced is often poorly defined. Alpha is measured as excess return after accounting for market risk, a manager's edge, yet alpha does not tell us what is the tool kit used to generate excess return. It is a measure but not a description of excess return generation.

A hedge fund tool kit list, a set of methods for return generation, provides insight in the ways that alpha can be achieved. These tools can be coupled with a description of alternative sources for return which provides a good list of the richness of choices for managers. See "Investing in Hedge Funds: Why Hedge Funds?" from Mercer.

Each hedge fund style can be discussed or measured through its alternative risk sources. For example, a managed futures fund focuses on cross-asset and variable beta for return generation while distressed debt focuses on complexity, deal, and liquidity risk premia. Using this framework  helps to focus our attention on what makes a hedge fund style unique. A hedge fund's edge comes through it tools and sources of return which is manifested in measured alpha.