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Alternative Market Briefing

Investors looking for alpha in Asia-focused hedge funds must focus on small funds

Thursday, December 01, 2011

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Peter Douglas
From Komfie Manalo, Opalesque Asia:

In Asian hedge funds universe, size does matter – or the "lack" of it. According to Singapore-based hedge fund data provider GFIA pte ltd the smaller the size of a hedge fund in Asia, the better it is for investors.

In its latest client monthly newsletter, GFIA, which is also a specialist in skill-based managers in Asian and emerging markets, said that the sweet spot for performance in Asia-focused hedge funds has decreased to 2004 levels.

"Investors seeking performance must focus on smaller funds," GFIA’s multi-year study of the relationship between a hedge fund’s size and its performance found.

Peter Douglas CAIA, principal of GFIA, commented: "We’ve always felt that alpha is a function of small asset size. But the economics of a hedge fund business are such that the industry would dearly love us to believe that alpha is scaleable. Yet again our research has demonstrated that, although the optimum size of a hedge fund in Asia is fluid over time, it’s never large, and, right now, it’s particularly small."

Douglas said the study offers a comprehensive analysis of the effect of size on performance and volatility across the four largest strategy groups. It found that the current sweet spot is surprisingly small for Asia-focused hedge funds. Asian funds with assets between $30m and $75m are likely to produce the best risk adjusted and absolute r......................

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