What are we to make of hedge fund attrition data?
Apr 1st, 2008 | Filed under: Hedge Fund Industry TrendsA hedge fund industry report published last week by Credit Agricole Asset Management contained so much information that you could take any number of messages from it. Headlines ranged from the positive (“Hedge funds hold nearly $2.2 trillion, report says“), to the benign (“New York Home To 25% Of $2T Hedge Fund Industry“) to the downright negative (“Long Live Hedge Funds? Not Quite“).
We’re starting to see a lot of talk about hedge fund attrition and longevity. But unfortunately, this issue is more complex than it is often made out to be. For example, one media outlet said:
“…only 2.45% have been around 15 years or longer, with another 15.25% between eight and 15 years…The report found that 10.29% were under a year old, with another 14.37% between one and two years old. In total, 38.6% of all hedge funds were no more than 2 years old.”
Naturally, in a growth industry many suppliers will necessarily be young. Nothing about eventual longevity can be concluded by this fact.
Earlier this month, the Wall Street Journal took a similarly negative position based on scant evidence of hedge fund attrition (“Hedge Fund Figures Suggest Worse to Come“). Said the paper:
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[...] We’re usually content to let sleeping dogs lie after issuing an opinion on mass media bias against hedge funds. But we have to quickly follow-up on Tuesday’s posting about hedge fund attrition. We argued that creative headline writers continue to have a hate-on with hedge funds, cooking up story titles like “1000 hedge funds may sink in turmoil” in reference to the industry’s rather unnoteworthy 10% turnover rate. [...]
[...] albeit a highly respected one. Just to add colour, elsewhere there has been some discussion of hedge fund attrition and the evolution of models in quant funds. Where does this leave [...]