Big is not always beautiful

One possible criticism of the Emanagers Index is its relatively small sample size of around 300 funds. This gives rise to the possibility that the returns of the Emanagers index may be inflated by survivor bias or possible cherry picking of funds. To mitigate against this, I this month updated some earlier research on Do Emerging Managers Add Value?, using the larger Eurekahedge database of over 10,000 funds.

In this research, we constructed Emerging and Established manager indices that control for both size and age. The three main emerging manager indices constructed are:

Eurekahedge < 36 months old and < $300m AUM,

Eurekahedge < 24 months old and < $200m AUM,

Eurekahedge < 12 months old and < $100m AUM.

And their established manager counterparts which are age-based only:

Eurekahedge > 36 months old,

Eurekahedge > 24 months old,

Eurekahedge > 12 months old.

In, addition we constructed a size based index: TOP 100 Funds by AUM. And, as a control, compared our results against the HFR New and Established Managers Indices and the Opalesque Emanagers Total Index. The results are fairly unequivocal.

Whilst the magnitude of the alpha (excess return between Emerging and Established Manager Index) differs in magnitude depending of which database is used, the results are broadly similar. The excess returns of the HFR New Managers Index is around +2.46%, the Eurekahedge Emerging Managers < 36 months and < $300m AUM +3.93%, and the Opalesque Emanagers Total Index +3.60%. The Top 100 Funds by AUM Index has slightly positive to slightly negative alpha depending on which Estab......................

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