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Impact Of Size And Age On Hedge Funds Performance

Impact Of Size And Age On Hedge Funds Performance: 2015 Edition by eVestment

What’s New in the 2015 Edition

The 2015 edition of eVestment’s Impact of Size & Age on Hedge Fund Performance report continues to build on findings from last year’s report to provide insight into performance trends for funds of various sizes and ages. In response to feedback from eVestment clients, the 2015 edition includes the following new elements:

  1. Analysis by strategy, including alphas where applicable
  2. Trailing statistics (3 years, 5 years, 7 years)
  3. Performance during various economic climates
  4. Migration across fund sizes
  5. More granular AUM breakdown of the ? USD 1 billion group
  6. Analysis of the 30 largest, most prominent funds
  7. Appendix of underlying data presented in tables and charts, inclusive of investment market information not present in the body of the report

Beyond the addition of these new elements, we have also updated, where applicable, figures from the prior edition of the report as new fund performance and AUM records have been added to eVestment’s historical sample.

Highlights

  • The proportion of small (<$250m) hedge funds is declining across the hedge fund industry, while investor interest in medium ($250-$999m) and large (?$1b) hedge funds
    seems to be growing as these two groups now make up their largest share of the reporting industry to date.
  • The tendency for smaller funds to outperform has declined. By average annual returns, the dominant outperformance streak of small hedge funds ceased in 2009 and has been
    inconsistent since.
  • The hedge fund industry continues to mature. The highest proportion of young funds (51.89%) dates back to December 2003, mid-age funds (35.69%) less distantly to January 2008 and tenured funds (56.64%) most recently to January 2014.
  • Age appears to play a greater factor in relative performance than size. Young (<2 years) funds posted the highest cumulative returns since 2003 and during the past 5 years have also outperformed mid-age (2-5 years) and tenured (>5 years) funds.
  • Data confirms a marked increase in the size of new fund launches. Cross-sectional samples of size and age show the representation of medium-sized funds under 2 years of age has increased from under 8% pre-financial crisis, to just over 13% in 2013.
  • Performance volatility tends to decline as AUM increases. In every year since 2003 the average medium fund has been less volatile than the average small fund, and the average large fund even less so than both. As a result, medium and large funds appear to have gained the upper hand over small funds in recent years on a risk-adjusted performance basis.
  • It is extremely unlikely for a small fund to become large in a single year. Nine out of 10 times in our sample a small fund in one year remained a small fund in the next. It appears that outflows move faster than inflows when it comes to large funds becoming small versus small funds becoming large.
  • During the worst drawdown period for the S&P 500 NTR in recent memory (Oct 2007 – Feb 2009), the average (median) prominent—group of 30 largest—fund was able to limit its cumulative losses to a minor -0.61% (-1.29%). This feat may be viewed as even more impressive considering how difficult it can be for these largest of hedge funds to shift in and out of positions due to scale.
  • As the trailing period extends from 36 to 60 and 84 months, the performance results generally favor youth, as the average young fund outperformed both its peers in every 5 year trailing period apart from 2010 and every 7 year trailing period excluding 2011. The same results are found when comparing the median 5 and 7 year...

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