Study: Hedge Funds That Launch Big Often Underperform

Jun 30 2011 | 8:11am ET

Starting out big doesn’t necessarily guarantee success in the hedge fund world, according to a study of Asian (excluding Australia and Japan) fund launches by hedge fund consultant GFIA.

GFIA looked at 510 fund launches between 2000 and 2010 and found that “large” funds—those that launched with over $75 million AUM—consistently underperformed their peers in all subsequent years.

Said Peter Douglas, principal of GFIA: “For experienced allocators these are intuitive findings. Nobody is surprised to learn that large funds experience a ‘snowball’ effect, raising assets quickly—nor that large fund launches are a reliable predictor of underperformance. What’s surprising is that investors continue to back larger funds, knowing they’re likely to underperform.”

GFIA’s study found that funds launched with AUM of less than $5 million showed little predictability of performance relative to their peers while funds launching with AUM between $10 million and $25 million tend to show the most consistent performance.

The study also found that funds that close down do so, on average, in 2.5 to 4 years for most strategies.

In Depth

Financial Industry Blockchain Consortium R3 To Open-Source Platform Code

Oct 20 2016 | 9:03pm ET

Bitcoin's blockchain technology has spawned a flurry of activity among fintech startups...


U.S. Trust's Beard: The Rapid Growth of the Art Lending Industry

Oct 7 2016 | 10:55pm ET

Alternative investment managers have emerged as some of the most significant art...

Guest Contributor

Hedge Fund Marketing – Tips for Your Initial Sales Meeting

Sep 29 2016 | 5:46pm ET

There are two main goals a hedge fund should have for an initial in-person sales...