Emerging Hedge Funds Outperforming?

Posted by Bull Bear Trader | 8/10/2008 08:18:00 AM | , | 0 comments »

Data from HedgeFund.net appears to show that emerging hedge fund managers, defined as those with a track record of less than three years and fewer than $300 million in assets under management, are doing better than their more established colleagues by generating returns that are 3% to 4% higher per year. Beside being more flexible in volatile markets due to their smaller capital structure, another possible reason for emerging fund out-performance appears to be that institutional investors are increasing their allocations to newer and smaller hedge funds, according to a report from the hedge fund group Infiniti Capital. This appears to be in contrast to previous reports (see Economist article, and previous post) that smaller hedge funds were having trouble raising capital and were subsequently being pruned from the industry as institutional investors and pension funds looked for the safety of larger, more established funds and managers. Either the data and analysis are incorrect, or a shift is occurring as institutions come to the realization that bigger is not always better, especially for those institutions investing in fund-of-funds which are more likely to generate returns closer to the market averages, while at the same time providing another layer of management fees.