« Tech and emerging markets hedge funds lead in Oct | Main | Leverage plus mayhem - a touch of midsummer madness or a midsummer market's dream? »
November 9, 2007
Smallest HFs Perform Best
Small hedge funds have outperformed their bigger brothers by 29% since January 2000, according to TrimTabs Investment Research. In its latest report on the hedge fund industry, it found that HFs with less than $100 million in assets under management returned an average 8.61% annually, compared with 6.29% for HFs with more than $2 billion AUM, concluding, the smaller they are the better they do. The study notes that the best performers -the small HFs -- also had the highest correlation to the S&P500 (67.3%), but that those with the least correlation - 29.9% for HFs determined to be large (between $1 billion and $2 billion AUM) - still produced happier returns - 7.69%-- than the mega funds did. Oddly enough, one cannot conclude that higher S&P correlation is the key to success, as mega funds had a 50.3% correlation and were still the worst performers. TrimTabs, acknowledging that its returns “almost certainly overstate” the industry performance because liquidated funds don’t report assets, also discovered that investors tend to favor small firms when allocating fresh cash.
The survey stated that there is “an almost linear relationship” between risk-adjusted returns and flows as a percentage of assets, with new flows into mega funds accounting for 33.6% of total assets, compared with small funds, with the second-highest risk-adjusted returns, attracting 71.4% of their assets. TrimTabs speculates that funds of hedge funds may have something to do with it. FoHF managers, says TrimTabs, “understand the risks and rewards of their portfolios and allocate fresh cash to smaller and better-performing hedge funds.”
-Institutional Investor-
Posted by su at November 9, 2007 10:32 AM