New York Times – SIZE matters in hedge funds. But bigger is not always better.

New fund managers tend to knock the cover off the ball during their first two years, accounting for much of the outperformance that has made hedge funds famous, a new study has found.

From Jan. 1, 2004, through Dec. 31, 2005, 167 “emerging managers” — those who started funds in 2003 and had $30 million to $250 million in assets — outperformed two leading hedge fund indexes, according to a study written by Sam Kischner and Ron Panzier for Mayer & Hoffman Capital Advisors, a fund of hedge funds based in New York that invests in the funds of emerging managers.

The new kids on the block had a return of 22.03 percent, on an equal-weighted basis, beating the Morgan Stanley Capital International noninvestable equal-weighted hedge fund index, on a total return basis, by more than 45 percent and more than double the returns of the Credit Suisse/Tremont investable index, the best-performing hedge fund index for the two-year period.

Of course, it is easier to post big gains when working from smaller numbers. But another reason the fresh faces start with a bang may be entrepreneurial angst.

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New York Times – SIZE matters in hedge funds. But bigger is not always better.

New fund managers tend to knock the cover off the ball during their first two years, accounting for much of the outperformance that has made hedge funds famous, a new study has found.

From Jan. 1, 2004, through Dec. 31, 2005, 167 “emerging managers” — those who started funds in 2003 and had $30 million to $250 million in assets — outperformed two leading hedge fund indexes, according to a study written by Sam Kischner and Ron Panzier for Mayer & Hoffman Capital Advisors, a fund of hedge funds based in New York that invests in the funds of emerging managers.

The new kids on the block had a return of 22.03 percent, on an equal-weighted basis, beating the Morgan Stanley Capital International noninvestable equal-weighted hedge fund index, on a total return basis, by more than 45 percent and more than double the returns of the Credit Suisse/Tremont investable index, the best-performing hedge fund index for the two-year period.

Of course, it is easier to post big gains when working from smaller numbers. But another reason the fresh faces start with a bang may be entrepreneurial angst.

New managers “live, eat, sleep and breathe their positions in their first year,” said Matthew Hoffman, chief investment officer of Meyers & Hoffman, at the MAR/Hedge conference in San Francisco. “When they are building a business, they are very conscious about every position in the portfolio.”

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