New research from Preqin’s Hedge Fund Analyst reveals that mid-sized hedge funds were the best performers in 2013 compared to other fund sizes.
Mid-sized hedge funds with assets under management (AUM) of $100-499mn and $500-999mn posted 12-month average returns over 2013 of 13.79% and 13.71% respectively, beating large funds (AUM of $1-5bn) and small funds (AUM of less than $100mn), which posted 12.08% and 11.45% respectively.
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- As fund size increases the spread of performance between the 25th and 75th percentile returns narrows; the largest funds show the smallest dispersion of returns, however these returns tend to be lower than funds with less than $1bn in assets under management.
- A lower proportion of mid-sized hedge funds saw losses in 2013 compared to large and small hedge funds. Among mid-sized hedge funds with $100-499mn and $500-999mn in AUM, only 12% and 8% of these funds respectively saw losses in terms of cumulative returns over the year.
- Top performing funds with assets of less than $100mn have shown the largest variation in risk-return profile over the three-year period ending 31 January 2014, with these funds exhibiting higher returns and higher volatility than their larger counterparts.
- 27% of mid-sized hedge funds with AUM of $100-499mn posted returns in excess of 20% in 2013, higher than the proportion of larger hedge funds (AUM of $1-5bn) that achieved this (19%).
- 48% of hedge fund investors surveyed stated that returns are a key factor when looking at a fund manager and in particular 21% of investors surveyed by Preqin stated the potential for better returns from smaller managers is a key reason for preferring funds with less than $1bn in assets.
- Investors are looking across a wide range of fund sizes in 2014; funds in the group $1-5bn are the most sought, with 57% of institutional investors seeking funds of that size in 2014, followed by 52% and 47% of investors looking at funds between US$100-499mn and US$500-999mn respectively.
Amy Bensted, head of Hedge Fund Products, Preqin, said: "Much of the capital inflow into the hedge fund industry over the past few years has been to just the largest funds, with investors looking for the proven track record and experienced investment teams that these larger hedge fund managers often provide. However, our analysis shows that investors are looking at a variety of fund sizes for investment in 2014 and different investors have different return objectives and risk appetite from their hedge fund investments. Performance remains a key factor in the selection process and Preqin’s latest research demonstrates that it is not always the largest funds that are providing the best performance in terms of risk and return.
"As funds become larger, the distribution of returns among the best performing funds moves towards the lower end of the return spectrum. Funds in the midsized groups i.e. those from $100-499mn or from $500-999mn, have shown the highest mean and median returns in 2013. The size range $500-999mn had the lowest proportion of funds suffering a loss in 2013, and the longer term return and volatility characteristics of these funds are similar to funds with assets of more than $1bn. Therefore, those investors which are looking to move away from investing in just the largest funds, but without taking on too much volatility, may choose to look towards investing in those funds with more than $500mn in assets."
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