Small hedge funds outperform mid-size and large funds, and young funds outperform older ones, states a PerTrac report.
The report, Impact of Fund Size and Age on Hedge Fund Performance, found that funds with less than $100 million in assets under management (AUM) returned 13.04% in 2010, compared to 11.14% posted by mid-size funds ($100 million to $500 million AUM) and 10.99% gains achieved by large funds (over $500 million AUM).
The study also found the performance of small and mid-size funds through the first six months of 2011 was better than their performance over the same period in 2010.
Young funds, defined by PerTrac as less than two years old, gained 13.25% in 2010, compared with gains of 12.65% and 11.77%, respectively, for mid-age funds in existence two to four years and “tenured” funds older than four years. Young hedge funds also appear to have achieved these returns with less risk than their competitors.
“The 2010 and first half of 2011 findings continue to suggest that investors seeking to maximize their returns should examine funds with less than $100 million in AUM or funds with less than two years of existence provided they fit their liquidity and allocation profile,” says Lisa Corvese, managing director of global business strategy at PerTrac.
Until 2008, small funds have consistently beaten mid-size and large funds, but in 2008—the only negative year for any of the sized based fund indices—small funds were the worst performers, declining 17.03%. In 2009, small funds came in second behind mid-size funds in performance, but while small funds have generally outperformed mid-size and large funds, their risk profile remains the highest and simulation models suggest this trend could continue.
“The 2010 and first half of 2011 findings continue to suggest that investors seeking to maximize their returns should examine funds with less than $100 million in AUM or funds with less than two years of existence provided they fit their liquidity and allocation profile,” says Corvese.
