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Hedge Fund Clustering in Q4 2015

March 9, 2016 : Permanent Link

(Harvest) Crowding consists of large capital pools chasing related strategies. Within the hedge fund industry, long equity portfolios crowd into several clusters with similar systematic (factor) and idiosyncratic (residual) bets. This hedge fund clustering is the internal structure of crowding. We illustrate the large-scale hedge fund clustering and crowded bets within the largest cluster. Allocators and fund followers without a handle on this phenomenon may be invested in an undifferentiated portfolio prone to liquidation, or paying high active fees for consensus factor exposures.

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