A new study from London’s Cass Business School found that smaller hedge funds perform better during times of crisis.
The analysis of the performance of 7261 hedge funds from 1994 to 2014 shows that a hedge fund with with £200m of assets would on average outperform a £5bn hedge fund by 125 basis points a year. The research, commissioned by Gatemore, the investment advisory firm, also shows that the performance of these funds was even greater during the financial crisis and immediately after the technology bubble burst in the 2000s.
The authors of the research believe it yielded some “surprising results” since investors would be expected to put their money in the hands of large hedge funds with more focus on risk management and larger research teams in the hope that these would outperform markets, even when these are in troubled waters.
However, it is not clear whether institutional investors will take these findings to heart. Some experts point out that without a recognisable name, smaller hedge funds might be seen as untrustworthy to invest in. The other side of the coin: small hedge funds are more likely to cope in stressed market conditions.
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