1 Dec 2011
Funds with assets between $30m and $75m are currently most likely to produce the best risk adjusted and absolute returns for their investors, according to GFIA pte ltd.
GFIA observes that the current sweet spot for performance is surprisingly small in Asia, having decreased to 2004 levels, where the sweet spot was reportedly between $50m and $100m.
The study, by the Singapore based specialist in skill-based managers in Asian and emerging markets, presents a comprehensive analysis of the effect of hedge fund’s size on performance and volatility across the four largest strategy groups.
The study has reported that in 2010 there was no obvious sweet spot across all strategies, although mid-sized funds were less volatile and generated better risk adjusted returns. In 2008, $450m to $750m was the sweet spot for long-short equity managers, against the background of a liquidity-driven bull market. Whereas, during 2006, the sweet spot for these strategies was between $150m and $300m.
GFIA observes that the current sweet spot for performance is surprisingly small in Asia, having decreased to 2004 levels, where the sweet spot was reportedly between $50m and $100m.
The study, by the Singapore based specialist in skill-based managers in Asian and emerging markets, presents a comprehensive analysis of the effect of hedge fund’s size on performance and volatility across the four largest strategy groups.
Peter Douglas CAIA, principal of GFIA, said: “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.”
The study has reported that in 2010 there was no obvious sweet spot across all strategies, although mid-sized funds were less volatile and generated better risk adjusted returns. In 2008, $450m to $750m was the sweet spot for long-short equity managers, against the background of a liquidity-driven bull market. Whereas, during 2006, the sweet spot for these strategies was between $150m and $300m.
