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GFIA, the Singapore based specialist in skill-based managers in Asian and emerging markets, has released a research paper showing that mid-sized Asian hedge funds have performed best.

In the paper, which provides an analysis of the effect of size on performance and volatility across different strategies, GFIA observes that for the bellwether strategy of Asia ex-Japan long-short equity funds, USD250m-USD750m has been the clear performance sweet spot.

In 2008, USD450m to USD750m was the sweet spot for long-short equity managers, against the background of a liquidity-driven bull market.

In 2006, USD150m to USD300m was the sweet spot for long-short equity strategies, in what were probably reasonably normal markets.

In 2004, USD50m to USD100m was the sweet spot for the same universe, in a period where market capacity was more limited.

The paper also quantifies the degree of shrinkage of the Asian hedge fund industry over the past three years, finding that on average 60 per cent of Asian hedge funds are still managing at least 20 per cent less capital than in 2007.

Peter Douglas, principal of GFIA, says: “Although the trend is for the performance sweet spot of Asian equity hedge funds to increase over the years, allocators still need to be very aware of the appropriate size of fund to maximise likely performance in Asia. Alpha is never scalable, and our research confirms this. The average size of Asian hedge funds has still not recovered from 2008 redemptions, and there’s therefore a current opportunity for allocators to participate in right-sized funds.”


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