Goldilocks got it right. At least she would have if she were talking about Asian hedge funds. Some are too big, some are too small, and some are just right.
According to Singapore-based hedge fund research and fund advisory firm GFIA, medium sized Asia (ex-Japan) long-short equity funds—those that manage US$250 million to US$750 million—perform the best.
A new white paper from GFIA shows that in 2008, $450 million to $750 million was the sweet spot for long-short equity managers. In 2006, those figures were $150 million to $300 million. And in 2004—a period when market capacity was more limited—the best performers has assets under management of $50 million to $100 million.
The white paper also quantifies the degree of shrinkage of the Asian hedge fund industry over the past three years, finding that on average, 60% of Asian hedge funds are still managing at least 20% less capital than in 2007.
“Although the trend is for the performance sweet spot of Asian equity hedge funds to increase over the years, allocators still need to be very aware of the appropriate size of fund to maximize likely performance in Asia," says Peter Douglas, principal of GFIA and Asia-Pacific representative director of the Alternative Investment Management Association.
"Alpha is never scalable, and our research confirms this," adds Douglas. "The average size of Asian hedge funds has still not recovered from 2008 redemptions, and there’s therefore a current opportunity for allocators to participate in right-sized funds.”
GFIA only sells its research to investors and allocators. It does not participate in the economics of underlying managers.