Large Funds Outperform Small Funds In Tough Times

Oct 9 2012 | 7:45am ET

Good news for big hedge funds: they perform better than their smaller rivals in down times.
According to a new  PerTrac report, Impact of Size and Age on Hedge Fund Performance: 1996 - 2011, the average large hedge fund (defined as a fund managing assets in excess of $500 million) experienced less severe losses than the average small hedge fund (one managing assets under $100 million) in the difficult years of 2008 and 2011. More precisely: PerTrac says large funds lost 2.63% on average in 2011 while small funds lost 2.78%.

Using 15 hedge fund databases (including five dead hedge fund databases to analyze the 2011 universe) PerTrac found that since 1996, there have been 41 months during which hedge funds of all sizes were in the red—but during 61% of these periods, large funds lost less than small funds. PerTrac also found that large funds maintained lower annualized volatility statistics relative to small funds.

On the other hand, small funds have outperformed large funds in 13 out of the last 16 years and PerTrac says investors with a higher tolerance for volatility and a desire to maximize returns should probably put their money in funds managing less than  $100 million.

“The findings suggest that investors interested in exposure to hedge funds and seeking to protect their wealth should examine funds with over $500 million in AUM, since the average large fund has had lower losses in negative performance years and lower annualized deviation figures compared to the average small fund,” said Jed Alpert, PerTrac managing director of global marketing.
PerTrac also considered the impact of fund age on performance and found that the cumulative return for the average young fund since 1996 is 827%, nearly double that of the 446% return for mid-age funds and well beyond the 350% posted by tenured funds. (The study defined “young” funds as those with a start date within the last two years, “mid-age” as those that commenced within the last two to four years, and “tenured” as those in operation for more than four years.)

The report also found that the average young fund has had 144 positive and 48 negative months since 1996, mid-age funds have had 136 positive and 56 negative, while tenured funds have had 129 positive and 63 negative.

In Depth

Related-Company Fees: Normal Industry Practice or Conflicted Compensation?

Nov 11 2015 | 4:23pm ET

Regulatory agencies as well as investors are increasingly exploring whether certain...


Ferrari Roars in Wall Street Debut

Oct 21 2015 | 4:28pm ET

Shares of supercar maker Ferrari jumped as much as 15 percent to a high of nearly...

Guest Contributor

Private Debt - What is the Opportunity?

Nov 11 2015 | 3:28pm ET

In this contributed article, Rob Allard, founding partner of Firebreak Capital...


Editor's Note

    Oct 21 2015 | 10:41am ET

    One of the most unique charity benefits in the hedge fund industry, A Leg To Stand On's (ALTSO's) Hedge Fund Rocktoberfest - NYC, raised nearly $500,000 last Thursday thanks to the generous support of major sponsors and nearly 1,400 attendees from the Tri-State finance, business and hedge fund communities. Read more…