Emerging Managers Have Delivered Twice the Returns of Established Managers

Lehman Brothers Rockefeller centre (Photo credit: Wikipedia)

Emerging Hedge Funds, defined here as those funds with less than 36 months of history and whose AUM < $300m, have generated excess compound average annual returns of +3.66% per annum over and above the return of their older ( > 36 month ), typically larger, brethren. This geometric rate of excess return compounds out to just under +100% cumulative over the 19.25 year period to end March 2012. It represents an arithmetic excess return, or alpha if you will, of +4.13% per annum. One of the immediate questions such studies raise is what about the question of Survivorship bias ? In response I would say only that the database used includes both dead and alive funds and that whatever bias there is affects both Emerging and Established Managers. Nonetheless it is no doubt a factor. One of the better pieces of research on the possible extent of survivor bias is An Examination of Hedge Fund Survivorship Bias and Attrition Before and During the Global Financial Crisis published in the ... Continue to read.

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