New Managers
February 2013
Guest Article - New study shows small equity long/short managers outperform their larger peers over five and ten year periodsAndrew D. Beer This article was authored by Andrew D. Beer, Chief Executive Officer of Beachhead Capital Management LLC, a New York-based advisory firm focused on hedge fund manager selection, portfolio construction, and risk management. One of the most vexing issues in the hedge fund industry is the relationship between growth in assets under management (AUMs) and future returns. An abundance of anecdotal evidence suggests that smaller managers with great performance attract capital quickly, which dilutes future returns.Further, the recent concentration of capital among large hedge funds has raised questions as to whether this has contributed to the decline in industry-wide alpha. In a recent report, Beachhead Capital Management analyzed approximately 2,800 equity long/short funds in order to get to the heart of this issue.In contrast to some prior studies and papers, Beachhead focused narrowly on the equity long/short space since these managers are likely to face similar capacity constraints (as opposed to, for instance, macro investors or CTAs). Beachhead divided the universe into firms that managed $50 million to $500 million in equity long/short AUMs ("Small") and those that managed more ("Big"). The $50 million lower bound was selected to make the sample more representative of an actual emerging manager investment program. The Beachhead study reached several interesting conclusions about smaller hedge funds that will resonate with many hedge fund investors:
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