ValueWalk – Hedge fund survivor bias is especially insidious for the largest firms. Large hedge fund survivor bias overstates expected performance of the biggest firms by nearly half and their risk adjusted return from security selection (stock picking) by 80%. It is impossible to predict the largest funds of the future, but one doesn’t have to – robust skill analytics identify funds that will do even better in the future than tomorrow’s largest.
We follow the approach of our earlier piece on hedge fund survivor (survivorship) bias, which analyzed the largest firms’ equity portfolios (HF Aggregate). This dataset spans the long portfolios of all U.S. hedge funds active over the past 10 years that are tractable using 13F filings.
