Study examines “mulligans” in hedge fund performance data
Mar 17th, 2008 | Filed under: Hedge Fund Industry Trends
Golfers are familiar with the term “mulligan” - the practice of re-doing a tee shot if the golfer duffs the ball into the woods, onto the next fairway or over the fence into someone’s backyard. God knows, we are quite familiar with mulligans at AllAboutAlpha.com.
According to the US Golf Association:
“Mr. Mulligan was a hotelier in the first half of the [20th] century, a part-owner and manager of the Biltmore Hotel in New York City, as well as several large Canadian hotels. One story says that the first mulligan was an impulsive sort of event - that one day Mulligan hit a very long drive off the first tee, just not straight, and acting on impulse re-teed and hit again. His partners found it all amusing, and decided that the shot that Mulligan himself called a ‘correction shot’ deserved a better named, so they called it a ‘mulligan.’”
There has been considerable debate over the years about whether hedge fund managers have been giving themselves mulligans when they occasionally shank their new funds into the drink. Since hedge fund managers voluntarily report their performance to the major databases (which form the foundation for most academic studies), it is felt that only their best funds eventually make it on the list - and when they do, the performance since inception is “back-filled” into the database to create what is often referred to as an “instant track record”. The result is that the returns reported by so-called “emerging managers” are not really a true representation of all attempts to launch new funds.
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