The average large hedge fund outperformed the average small fund in the negative performance years of 2008 and 2011, according to a study from PerTrac.
Impact of Size and Age on Hedge Fund Performance: 1996 - 2011, shows that during the 41 months since 1996 in which hedge funds of all sizes posted negative performance results, the average large fund lost less than the average small fund in 61 per cent of these monthly periods.
The study, which uses 15 global hedge databases, including five distinctive dead hedge fund databases to analyse the 2011 hedge fund universe, also shows that the large funds dipped 2.63 per cent on average in 2011, the least when compared to small funds’ 2.78 per cent and mid-size funds’ 2.95 per cent slides.
Large funds also maintained lower annualised volatility statistics relative to small funds.
The study defines a fund as “small” if its assets under management are less than USD100m, “mid-size” if assets are between USD100m and USD500m, and “large” if assets managed exceed USD500m.
“The findings suggest that investors interested in exposure to hedge funds and seeking to protect their wealth should examine funds with over USD500m in AUM, since the average large fund has had lower losses in negative performance years and lower annualised deviation figures compared to the average small fund,” says Jed Alpert, managing director of global marketing at PerTrac.
Investors with a higher volatility appetite and seeking to maximize returns should consider funds with less than USD100m in AUM, since the average small fund has outperformed the average mid-size fund and average large fund in 13 out of the last 16 years.
The study also examines the impact of fund age on performance and shows that the cumulative return for the average young fund is 827 per cent, since 1996, nearly double that of the 446 per cent return for mid-age funds and well beyond the 350 per cent posted by tenured funds. The report further shows that it has been an uneven journey. 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. The study defines a fund as “young” if its start date was within the last two years, “mid-age” if it commenced within the last two to four years, and “tenured” if it has been operating beyond four years.