Age Bigger Factor Than Size In Hedge Fund Performance

Apr 9 2014 | 11:03am ET

Age is apparently more of a factor than size in hedge fund performance, according to a new survey from eVestment.

The data provider combed over 11 years' worth of data for its latest report—“Impact of Size and Age on Hedge Fund Performance: 2003-2013"—and found that an index of funds with less than two years of track record (rebalanced annually) outperformed mid-aged funds (2-5 years) and tenured funds (over 5 years) in each year of the monitored period.

On the size front, the study found that while small funds (under $250 million) outperformed medium-sized funds ($250-$999 million) and large funds ($1 billion and over) from 2003 to 2013, the bulk of that outperformance was achieved from 2003 to 2008.

When eVestment crunched performance numbers from January 2009 through December 2013, small funds trailed their mid-sized and larger competitors, returning a cumulative 42.55% compared to 49.29% for medium-sized funds and 44.15% for large funds.

The study also found a maturing hedge fund industry: Since 2003, the number of young funds has declined by 56.23%; the number of mid-age has declined by 4.27%; but the number of tenured funds has grown 99.17%.

In fact, large and tenured funds accounted for a larger proportion of the overall industry in 2013 than ever before—tenured funds, in fact accounted for a whopping 78.35%.

The percentage of small, young funds has declined every year since 2004—from 94% in 2004 to 77% in 2013. Over the same time period, the percentage of mid-sized funds under two years old has increased from between 5-6% pre-financial crisis, to nearly 20% in 2013.

eVestment notes that money seems to have flowed primarily to the largest hedge funds over the monitored period, as average large fund AUM has not declined in a single year since 2003, while the average AUMs of small and medium-sized funds have fluctuated.

The average large fund saw its best asset growth in 2011 (up $400.8 million year on year) and 2012 (up $447.7 million year on year).

The study also found that institutional investors have become the largest allocators to hedge funds, displacing funds of funds and high-net-worth individuals.

eVestment drew upon a database of 24,000 investment vehicles for the study.


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