Comments on: A “small-cap bias” in hedge funds themselves? http://allaboutalpha.com/blog/2008/05/21/a-small-cap-bias-in-hedge-funds-themselves/ Hedge funds, portable alpha, 130/30 and alpha-centric investing Fri, 19 Mar 2010 07:52:26 +0000 http://wordpress.org/?v=abc hourly 1 By: Thursday links: Moody’s mea culpa « Abnormal Returns http://allaboutalpha.com/blog/2008/05/21/a-small-cap-bias-in-hedge-funds-themselves/comment-page-1/#comment-107977 Thursday links: Moody’s mea culpa « Abnormal Returns Thu, 22 May 2008 12:04:21 +0000 http://allaboutalpha.com/blog/2008/05/21/a-small-cap-bias-in-hedge-funds-themselves/#comment-107977 [...] “(S)mall hedge funds seem to beat large ones every year. ” (All About Alpha) [...] [...] “(S)mall hedge funds seem to beat large ones every year. ” (All About Alpha) [...]

]]> By: Walt French http://allaboutalpha.com/blog/2008/05/21/a-small-cap-bias-in-hedge-funds-themselves/comment-page-1/#comment-107879 Walt French Thu, 22 May 2008 04:00:29 +0000 http://allaboutalpha.com/blog/2008/05/21/a-small-cap-bias-in-hedge-funds-themselves/#comment-107879 Another possibility is that it's easier to slip a small fund into a database after a successful development phase in the nursery, while unsuccessful small funds get merged into other strategies or not reported at all. Ergo, smaller funds -- especially, younger ones, which, since I didn't RTFA, may or not have been corrected for in the work. $2 billion funds, of course, don't just appear out of nowhere and few of them disappear without some parting shot. Also, managers of small funds may feel they have almost nothing to risk and take higher bets: a small fund is either dramatically more successful than its peers or is condemned to eternal unprofitability on any asset-based fee schedule. Ergo, higher risks taken (with clients' money). Just speculation, in case it's not obvious from a close read. Another possibility is that it’s easier to slip a small fund into a database after a successful development phase in the nursery, while unsuccessful small funds get merged into other strategies or not reported at all. Ergo, smaller funds — especially, younger ones, which, since I didn’t RTFA, may or not have been corrected for in the work.

$2 billion funds, of course, don’t just appear out of nowhere and few of them disappear without some parting shot.

Also, managers of small funds may feel they have almost nothing to risk and take higher bets: a small fund is either dramatically more successful than its peers or is condemned to eternal unprofitability on any asset-based fee schedule. Ergo, higher risks taken (with clients’ money).

Just speculation, in case it’s not obvious from a close read.

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