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West Palm Beach (HedgeCo.net) -While previous research has confirmed the widely held belief that emerging funds tend to outperform older and larger funds, hedge fund performance in 2008 saw a partial reversal of that trend, according to PerTrac Financial Solutions in its third annual study that examines hedge fund returns, volatility and risk, based on age and size.
“Last year was a difficult one for hedge funds of all ages and sizes, but once again we saw younger funds outperforming older ones, confirming our findings from earlier studies,” said Meredith Jones, managing director at PerTrac. “However, when it comes to hedge fund performance as a function of fund size, we saw a reversal of the trend established from 1996 through 2007. During 2008, funds with the least assets actually performed the worst, while larger funds posted better returns.”
As in past studies, PerTrac conducted two different analyses: one based on a fund’s asset size, and the other based on a fund’s age. Monthly hedge fund returns were compiled from leading hedge fund databases and analyzed using the proprietary PerTrac Analytical Platform software. In each analysis, funds were re-categorized into one of three assets under management (AUM) size groups: up to $100 million; $100 million to $500 million; and over $500 million. The funds were also categorized into one of three age groups: up to 2 years; 2 to 4 years; and over 4 years. The mean fund return was calculated for each group in each month, creating three size-based monthly indexes and three age-based monthly indexes. Various risk and return statistics were calculated on the returns of each index to evaluate historical performance, and Monte Carlo simulations were run on each index to indicate probable ranges of future returns and drawdowns.
Small Hedge Funds Underperformed Larger Funds for the First Time Since Beginning of Study Data.
The study reveals that small funds averaged a loss of -17.03% in 2008, while medium-sized and large funds fared better, with average losses of -16.04% and -14.10% for the year, respectively. However, over the full history of the indexes, from 1996 through 2008, small funds performed best, with an annualized return of 13.05% versus 9.99% for medium-sized funds and 9.28% for large funds. Along with its stronger returns, the small fund index also showed greater volatility over the 13-year period with an annualized standard deviation of 6.96% versus just 5.92% and 6.05% for the medium-sized and large fund indexes, respectively.
“There are several possible reasons why small funds underperformed their larger peers for the first time ever in 2008. Due to losses across the board, hedge funds experienced heavy redemption requests last year. Larger funds generally have more cash on hand and greater access to lines of credit than small funds, better enabling them to handle redemption requests without compromising their portfolios’ performance,” noted Jones. “The recent market crash also appears to have prompted a ‘flight to quality’ among investors, with surveys indicating that hedge fund investors have become more interested in larger, more ‘institutional’ funds. So it’s likely that smaller funds had to deal with relatively greater redemptions than did their larger peers. We also noted a larger differential in the number of large managers reporting in both the prior and current studies, with a larger percentage of small managers participating in both updates. As a result, there is heavier survivor bias in the large fund group. Other possible reasons include infrastructure considerations, greater reliance on beleaguered prime brokers, and larger redemptions from poor performers pushing more managers into lower asset bands.”
“However, one year does not make a trend,” concluded Jones. “It will be interesting to see whether the small funds’ underperformance in 2008 proves to be a short-term exception to the rule or the start of an official trend.”
Young Funds Continued to Outperform Older Funds in 2008
An examination of the relationship between fund age and performance revealed no surprises for 2008. Hedge funds with the shortest track record continued their trend of superior performance last year as the young fund index lost -11.31% for the year compared to much larger losses of -19.46% and -17.85% by the mid-age and older fund indexes, respectively. Over the full history of the indexes from 1996 through 2008, young funds have generated an annualized return of 15.74% while mid-age and older funds have trailed with annualized returns of 11.48% and 10.12%, respectively. Young funds have also fared best from a risk perspective over the long term; the young fund index has produced an annualized standard deviation of just 6.47% over the 13-year period while the mid-age and older fund indexes have proved more volatile with annualized standard deviations of 7.11% and 6.72%, respectively.
The new study is the latest in a growing body of research produced by PerTrac Financial Solutions for the investment community. The company is devoted to advancing the study of hedge funds and other investments by publishing original research as well as providing free access to their PerTrac Analytical Platform software to academic professors, students, and selected researchers through the PerTrac Educational Use Program.
Editing by Alex Akesson
For HedgeCo.Net Email: alex@hedgeco.net
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Straits Times – Hedge fund executives at the conference said Mr Obama’s deal undercut bankruptcy court rules that have long given priority to secured lenders. The White House move and its combative stance with hedge funds may keep some managers on the sidelines or chill investment in some companies.
Mr Gary Kaminsky, former managing director at Neuberger Berman, told conference members that government involvement began last March with the forced sale of Bear Stearns to JPMorgan Chase and has not let up since.
‘You have to assume the government will be involved. You have to assume the free market is not as free as it was in the past and won’t be for the next 20 years,’ Mr Kaminsky said.
Business Spectator – A group of three former Equigold executives have successfully staged a boardroom coup, replacing the board of Regis Resources in a requisitioned meeting held in Melbourne earlier today.
Mark Clark, Equigold’s former managing director, Nick Giorgetta, the former chairman of Equigold, and Morgan Hart were each elected to the board by an overwhelming 89 per cent of shareholders, including Newmont Corporation. Former Newmont Australia chief executive Paul Dowd, was on the Regis board, but stepped down before the vote went ahead.
Former ASIC chairman Jeff Lucy was another Regis director who stepped down before the vote was held, leaving the company’s founder David Walker as the only man standing to defend the outgoing management’s efforts to take the company from gold explorer to developer to producer.
West Palm Beach (HedgeCo.net) – In co-operation with the City Bar Center for Continuing Legal Education, Karl A. D’Cunha, a Senior Managing Director of Houlihan Smith & Company, Inc., will participate in a panel discussion involving industry experts and City Bar Center Faculty titled: "Hedge Funds in Distress" during the City Bar Center for CLE’s program titled: "Hedge Funds in The Current Environment" moderated by Nora M. Jordan of Davis Polk & Wardwell.
The educational overview of "Hedge Funds in the Current Environment" will take place today at the Association House of the City Bar Center for Continuing Legal Education at 42 West 44th Street in New York.
Houlihan Smith & Company, Inc. is an investment banking firm that works with 20 of Alpha Magazine’s "Top 100 Hedge Funds."
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Reuters – Bahrain- and London-listed investment house Investcorp INVB.BH plans to set up a fund worth up to $500 million to invest in U.S. real estate-related debt, its managing director said on Thursday.
Investcorp’s Managing Director Khalid al-Rumaihi told Reuters the company is seeking between $250 million and $500 million for the fund that will buy into U.S. real estate debt paper trading at a discount due to the financial crisis.
Bloomberg – U.S. hedge funds are buying more of the nation’s stocks than they’re selling for the first time since October, while mutual funds and most other investors remain net sellers, according to UBS AG.
In the four weeks ended March 13, net purchases of equities by hedge fund clients of UBS averaged $140 million, according to a March 18 report by David Bianco, the New York-based chief equity strategist at Switzerland’s biggest bank. The inflows into stocks followed 22 straight weeks of outflows.
“Those who are supposedly experts at assessing and managing risk are more confident putting capital to work than they were in October and November,” said Peter Kenny, managing director in institutional sales at Knight Equity Markets LP Jersey City, New Jersey. “That’s an indication that the market has made some constructive moves toward building a base.”
Reuters – Artradis Fund Management, Singapore’s largest hedge fund manager, said on Monday it has hired David Dredge from Royal Bank of Scotland as managing director for portfolio management.
Dredge was deputy global head of local markets at RBS as well as its head of local markets trading and risk management in Asia. He is also deputy chairman of the Singapore Foreign Exchange Market Committee.
Artradis said in a statement it saw opportunities in foreign exchange and interest rates, and has re-opened two of its funds to take in fresh money from investors.
HedgeCo.net – Artradis Fund Management, Singapore’s largest hedge fund manager, said on Monday it has hired David Dredge from Royal Bank of Scotland as managing director for portfolio management.
Dredge was deputy global head of local markets at RBS as well as its head of local markets trading and risk management in Asia. He is also deputy chairman of the Singapore Foreign Exchange Market Committee.
Artradis said in a statement it saw opportunities in foreign exchange and interest rates, and has re-opened two of its funds to take in fresh money from investors.
StreetInsider.com – Former CNBC news anchor Ron Insana reportedly will be leaving Stevie Cohen’s SAC Capital. This move should all but put an end to Insana’s foray into the hedge fund world.
Ron Insana decided to leave SAC Capital only six months after he was hired as managing director, according to the NY Times DealBook. Insana’s last day at the fund will be on February 27th.
Insana came to SAC after the fund-of-hedge-funds firm he launched, Insana Capital, failed after not raising the money he envisioned and not meeting the returns Insana and his investors expected.
Bloomberg – Australian hedge funds will attract a net inflow of cash in 2009 after record redemptions by overseas investors led to the closure of at least 10 funds in the fourth quarter, the local arm of the Alternative Investment Management Association said.
Funds that survived will see some of that money invested in March once December quarter redemptions are returned to investors, AIMA Australia Chairman Kim Ivey said in an interview.
“Getting through this period is the defining time for managers because new money in March and April may keep them afloat,” said Sydney-based Ivey, who is also managing director of private hedge fund Vertex Capital Management. “Those that came out of 2008 and showed that they could still add value are in a very good position in 2009.”
West Palm Beach (HedgeCo.net) – Recently launched Codiam Fund, which invests in pre-cut colored diamonds, has reported an increase of 9% in the fund’s net asset value over the first three months of trading.
"We launched the fund in difficult market conditions, confident that our experience and expertise would enable us to identify and purchase rare coloured diamonds that would grow in value for our investors, and the increase to our net asset value has proved this to be true," says Codiam managing director Philip Baldwin, who co-founded the business with Mahyar Makhzani.
The fund managers believe the colored diamonds offer a hedge against market and political crises, as they have not decreased in price on a wholesale level in 35 years, consistently outperforming other diamond categories, with their value increasing on average between ten and 15% a year.
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Lethbridge Herald - The top cop at the U.S. Securities and Exchange Commission is leaving the government less than a week after receiving an angry dressing-down before Congress over the agency’s failure to detect a massive alleged fraud scheme.
The SEC said Monday that Linda Thomsen is leaving to pursue opportunities in the private sector, but did not provide further details. She has been the agency’s enforcement director since May 2005, under two previous SEC chairmen.
A replacement for Thomsen wasn’t named. The leading candidate was Robert Khuzami, a former federal prosecutor who is managing director and general counsel of investment firm Deutsche Bank.
