When Picking a Hedge Fund, Bigger isn’t Always Better

stock marketFor many years the question of whether the size of a hedge fund affects its returns has been hotly debated. Although there is ample evidence that a few legendary funds are able to manage billions of dollars and consistently deliver outsized returns to investors over the long term (especially on a risk-adjusted basis), there is mounting evidence that, at least in the world of hedge funds, smaller can be better.

The reasons for this are varied, but boil down to three key elements: managers of small funds are hungrier; managers of smaller funds depend on performance fees to live on; and very small investments can “move the needle” for smaller funds.  Read More…

This article has 6 Comments

  1. Jerome

    It still amazes me that there are investors out there who will be willing to roll the dice so much with high risks as to dive into the deep end with hedge funds. I don't get it.

  2. Hamza Shields

    I still recall that study by WSJ years back where they found that a small computer program that randomly made picks outperformed seasoned fund managers. Just sayin'

  3. Leonardo Veronesi

    Any quality hedge fund picks to do some research on?

  4. Porter L.

    I am in the wrong line of business 🙂

  5. Jye F.

    Yea i agree with the article that the hunger and drive is more with newer funds because they have something to prove. I've taken part in a few and although it can be nerve racking its a good experience.

  6. Karl Hanset

    There MERs must be really high.

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