New York (HedgeCo.net) – A new study has been released that suggests that when it comes to investing in hedge funds, bigger isn’t always better. The study was conducted by researchers at City University in London and the findings showed that smaller hedge funds hold up better during a crisis or tumultuous market.

In an article from eFinancial News, the study was highlighted and they pointed out statistics from the 2008 financial crisis and the bear market in 2000-2001. During 2008, the smallest 10% of hedge funds returned -0.48% per month and the largest funds showed returns of -1.28% on a monthly basis. Over the course of a year, that is a 9.6% difference. In 2000, the smaller funds produced a return of +1.09% per month while the larger funds produced average returns of +0.65%. This differential would create a 5.2% greater return over the course of a year.

The report offered three possible reasons for the performance difference. First, larger funds are more apt to be held by fund of funds and reactionary investors that jump ship at the first sign of adversity. Second, smaller funds are more apt to have tighter restrictions on withdrawals or longer lock-up periods. Third, the smaller funds are more apt to have less exposure to market risk simply because of their size.

Rick Pendergraft
Research Analyst
HedgeCoVest