Emerging-hedge-fund managers are getting more attention from institutional investors because they tend to produce better returns than larger, more established funds, but industry insiders disagree about the extent of the outperformance.
Hedge fund investment consultants and early-stage fund-of-hedge-funds managers are critical of industry-produced and academic analyses that don’t correct for survivorship and backfill biases found in the various public databases that aggregate self-reported hedge fund returns. They contend that statistical studies including these two biases produce artificially high returns for both small/young and large funds.
One of the industry’s most widely read performance comparison studies, by PerTrac Financial Solutions LLC, showed that small hedge funds — managing less than $100 million — each produced 360 basis points of annualized outperformance over large funds — those managing more than $500 million each — over the 15-year period ended Dec. 31.
Over the same period, hedge funds in business less than two years returned an annualized 526 basis points more than those in operation for more than four years, PerTrac researchers found.
