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Alternative Market Briefing

Large hedge fund startups raise money easily but perform worst

Monday, July 18, 2011

From Precy Dumlao, Opalesque Asia:

Large hedge fund startups, usually with a minimum of $75m in assets under management (AuM) consistently underperform, yet it is easier for this hedge fund group to raise assets at a much higher rate compared with their smaller counterparts. This was the findings of GFIA, a Singapore-based research firm.

"Except for the very small launches, those with AUM of $5m or less on day one, and the large launches, those with AUM of more than $75m on day one, close to 80% of funds which liquidated, did so within five years from inception. The average lifespan was 3.9 years. Funds which launched with AUM of less than $5m showed low consistency in outperforming their peers, while funds which launched with an AUM of more than $75m consistently underperformed," the study said.

GFIA studied some 510 hedge funds from the Eurekahedge Emerging Market database with data going all the way back to January 2000. The research found that, over the past 11 years, close to 70% of hedge funds in Asia, excluding Japan and Australia, launched with an AUM of $25m or less. The average launch size of a fund over the same period was just $23m. No funds in the database launched with an AuM of more than $400m

Funds that launched with an AuM of between $10m and $25m tend to show the most consistent outperformance. Funds with an initial AUM of less than $5m have three-year returns that fluctuate the most, outperf......................

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