Wed, May 4, 2016
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
New Managers March 2013

Guest Article - Does size (of a hedge fund) matter?

What is the role of size in a hedge fund? For decades, academics and professionals have been trying to find the optimal ratio of assets to performance. We will try to animate the debate and to answer to this multiple-choice question in a simple and empirical way.

The main objective is to find out at which point a portfolio manager is too small with the risk of not having the right infrastructure and the necessary network, and when another portfolio manager is getting too big, and perhaps too rich, to still maintain the motivation needed to generate outsized performance rather than just charging heavy management commission.

One might have noticed in the recent Forbes ranking the list of estimated revenues of the world's biggest hedge funds managers. If some of them have clearly earned their money thanks to their trading or investing skills, others have just collected big management fees only thanks to their past relative to the performance they actually have generated. Those ones are "fat and happy" and live on their reputation. Others have made a choice to target institutional assets seeking to adapt their business and investment strategies to serve a broader range of investors. This is to the detriment of absolute performance and potentially changing investment style with a bigger allocation to liquid assets (indices, treasury bonds, sovereign currency G10, or even G3), or, on the contrary, to less liquid ones like private equity.

Some observers saw the legendary Moore Capital giving back capital to its clients under the simple but good reason that given the current market conditions (politically manipulated with chronicle issues and recurring sovereign risk), the size becomes a handicap to navigate efficiently within very noisy markets without a stable trend.

......................

To view our full article please login

This article was published in Opalesque's New Managers a top-down monthly analysis, news and research publication on the global emerging manager space.
New Managers
New Managers
New Managers

Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Hedge funds see $14.3bn outflows in Q1, CTAs and multi-strategy lead net inflows[more]

    Komfie Manalo, Opalesque Asia: The hedge fund industry saw net outflows of investor capital in the first quarter of the year, totaling $14.3bn, data from Preqin showed. This continues from the $8.9bn overall net outflows that funds recorded in Q4

  2. Third Point calls Q1 "catastrophic" for hedge funds[more]

    Bailey McCann, Opalesque New York: The first quarter of this year was rocky for hedge funds based on aggregate performance from the industry, but now we are beginning to hear what the managers thought of it as quarterly letters make their way to investors. Dan Loeb, CEO of New York-based $17 bill

  3. Asia - Stabilization of China's capital outflows may hinge on Janet Yellen, Fink says China to do well this year as bubble threat postponed, Chinese hedge fund to invest in India’s infrastructure[more]

    Stabilization of China's capital outflows may hinge on Janet Yellen From Bloomberg.com: Whether China’s recent stabilization of its currency and capital outflows continues -- or downside pressure reignites -- may hinge in large part on Janet Yellen. If the Federal Reserve chair sticks to

  4. …And Finally - After all, judges are human too[more]

    From Newsoftheweird.com: In March, one District of Columbia government administrative law judge was charged with misdemeanor assault on another. Judge Sharon Goodie said she wanted to give Judge Joan Davenport some files, but Davenport, in her office, would not answer the door. Goodie said once the

  5. Comment - Unmasking the men behind Zero Hedge, Wall Street's renegade blog[more]

    From Bloomberg.com: Colin Lokey, also known as "Tyler Durden," is breaking the first rule of Fight Club: You do not talk about Fight Club. He’s also breaking the second rule of Fight Club. (See the first rule.) After more than a year writing for the financial website Zero Hedge under the n