2008: The year of the small fund anomaly
Jun 2nd, 2009 | Filed under: Performance, Analytics & Metrics, Today's Post
A lot of funds of hedge funds focus almost exclusively on smaller, newer hedge funds. Whether its due to the backfill bias that gives young funds apparent superpowers or simply because their managers are hungrier, newer hedge funds seem to outperform their older compatriots. Similarly, smaller funds (regardless of age) have generally performed better than larger ones.
Small Fry
Until now. Data analytics firm Pertrac, recently found that 2008 was an anomalous year since smaller hedge funds actually underperformed larger ones. As Pertrac’s Meredith Jones says in the company’s press release,
“Last year was a difficult one for hedge funds of all ages and sizes…However, when it comes to hedge fund performance as a function of fund size, we saw a reversal of the trend established from 1996 through 2007. During 2008, funds with the least assets actually performed the worst, while larger funds posted better returns.” (our emphasis)
This is what the company found: (note: standard deviations calculated over 1996-2008 time frame) More…
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