Publication Type
Magazine Article
Version
Publisher’s Version
Publication Date
11-2012
Abstract
How does fund size impact fund performance in the hedge fund industry? We find unsurprisingly that fund size crimps both raw and risk-adjusted fund returns for the average hedge fund. An increase in fund assets under management from US$20m to US$1bn decreases fund alpha by 2.04 percent per year. However, significant variation exists across funds when funds are grouped by investment strategy and region. Equity long/short, event driven, and macro funds are susceptible to capacity constraints while fixed income and managed futures funds are largely immune to such concerns. Our finding that capacity issues impact macro fund performance raises fresh questions about the liquidity of the assets that macro funds trade. While we find that diseconomies of scale are pervasive across the majority of investment regions examined, it is surprising that funds operating in the Asian and Latin American markets are largely free of such constraints.
Keywords
hedge funds, fund size, alpha, macro funds
Discipline
Finance and Financial Management
Research Areas
Finance
Publication
Hedge Fund Insights
First Page
2
Last Page
8
Publisher
BNPP Hedge Fund Centre
City or Country
Singapore
Citation
Teo, Melvyn. 2012 December. Diseconomies of Scale in the Hedge Fund Industry. Hedge Fund Insights, 2-8.
Copyright Owner and License
BNP Paribus Hedge Fund Centre, Singapore Management University
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.