Publication Type
Working Paper
Version
publishedVersion
Publication Date
12-2017
Abstract
Duplicate, see https://ink.library.smu.edu.sg/lkcsb_research/5964/. We investigate the growth strategies of hedge fund firms. We find that firms with successful first funds are able to launch follow-on funds that charge higher performance fees, set more onerous redemption terms, and attract greater inflows. Motivated by the aforementioned spillover effects, first funds outperform follow-on funds, after adjusting for risk. The multiple-product growth strategy hurts investors while benefiting hedge fund firms; multiple-product firms underperform single-product firms but harvest greater fee revenues. Investors respond to this growth strategy by redeeming from first funds of firms with follow-on funds that do poorly. Moreover, skilled investors allocate more capital to first than to follow-on hedge funds. Empirically, the multiple-product firm has become the dominant business model for the hedge fund industry.
Keywords
hedge funds, first funds, follow-on funds, spillover, agency problems
Discipline
Finance and Financial Management | Portfolio and Security Analysis
Research Areas
Finance
First Page
1
Last Page
51
Embargo Period
10-1-2018
Citation
FUNG, William; HSIEH, David; NAIK, Narayan Y.; and TEO, Melvyn.
Hedge fund franchises. (2017). 1-51.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/5896
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://ssrn.com/abstract=2542476