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Small Hedge Funds Outperform Larger Peers In Crisis And Calm

It has been known for some time that in general smaller hedge funds outperform larger Hedge Funds. This is obviously a general rule with many exceptions, but the basic reality behind it is confirmed by the fact that nearly all hedge fund firms limit the size of their individual funds/strategies.

That said, there has also been a generally accepted belief that larger hedge funds were "safer" than their smaller counterparts, as they tended to be less volatile and were also more buffered in the event of a crisis or "black swan" event.

Recent academic research, however, is bringing this belief about the safety of larger hedge funds into question. Researchers at the City University in London say their study shows that smaller hedge funds actually perform better than large funds in crisis periods.

Andrew Clare, Dirk Nitzsche and Nick Motson note in the abstract of their study: "Our results indicate that there is a strong, negative relationship between hedge fund performance and size. But, in addition, we also find that rather than dissipating...