Hedge funds promise sophisticated strategies and returns to acquire the market, but do they provide enough value to justify their high prices? Research reveals various pictures. Some hedge fund managers show impressive skills in stock picking and market timing, but overall performance often has not reached the standard index.
For investment experts, this task is to identify a small number of managers that combine skills, performance and tenacity. This is the first in three blog posts that explore hedging funds.
skill
I found a complex evidence that hedge fund managers have investment skills. In fact, their investment results are much better than you can expect from just luck. However, some papers indicate that the best manager stands out.
Kosowski et al. (2007) I found that the performance of the top hedge fund could not be explained by luck. CHEN and LIANG (2009) looks at the 227 and timing hedge fund samples from 1994 to 2005, and discovered evidence of the market timing skills, especially in bear markets and unstable markets. did. Nohell and others. (2010) Comparing the return of investment trusts operated by a manager who manages hedge funds in the return of other mutual fund managers, the former was discovered significantly exceeding the latter.
Recently, AIKEN and KANG (2023) has found that hedge fund managers have decreased over time, but have inventory picking skills that do not find evidence of market timing skills. Bath and others. (2023) discovered that no hedge fund was generated in a commercial database, which returned up to $ 600 billion (before the fee) from 2013 to 2019.
Other research identifies the characteristics that can help you choose a skilled hedge fund manager. Agalwal, etc. (2009) has found that it includes a large management incentive, high -owned hedge fund, and high water marks that are highly owned by administrators. They have also found that more expanded lockup notifications and repayment periods provide excellent performance with higher management discretion. Sun et al. (2012) I devised the “Strategy identification index”.
High index funds were related to subsequent performance improvements. After adjusting the risk, the highest SDI 5 -minute funds increased by 3.5 % in the following year, the minimum amount of 5 minutes. CAO et al. (2021) The emerging hedge funds released during the low demand for this type of fund have been found to be better than those started during the high demand period.
performance
Balance does not suggest an impressive performance from hedge funds.
Ackermann et al. (2002) Hedge funds were consistently better than mutual funds, but were better than standard market indexes. They also discovered that hedge funds were more unstable than mutual funds. Kosowski et al. (2007) It has been reported that hedge funds generate alpha statistically non -important in five of the six reviewed categories. The author also stated that the residue of long/short stock funds was negative, and the relative value funds show high purification and higher than usual.
In contrast, Newton et al. (2019), from 1995 to 2014, studying 5,500 North American hedge funds following 11 different strategies revealed that all two hedge fund strategies exceeded the market as a standalone investment. , The skill level of the manager was low.
SULLIVAN (2021) analyzed hedge fund performances between 1994 and 2019, and divided the data into two sub samples. From 1994 to 2008, he found 3.4 % Alpha per year. However, in the recent period of 2009 to 2019, he found -1.0 % Alpha. The author concludes that the performance of hedge funds may have decreased over time due to the decreasing exposure to management risks. The other two studies, EKSI, Kazemi (2022) and amir-ghassemi et al. (2022), confirmed the decline of hedge fund performance since 2009. In contrast, Barth et al. (2023) From 2013 to 2019, the non -list hedge funds have argued that they have produced positive alpha on a average. However, Swedroe (2024) has dismissed this claim, and the funds that are not registered in the average list may be added, but the central fund (more typical statistical diagram) is so. He claims that it is not.
Sustainability
The important scale of whether the best hedge fund manager in good luck and skills performs performance is sustainability. Does the highest performance hedge fund tend to repeat out -performance during the subsequent period? Unfortunately, except for one remarkable exception, most studies show an important hedge fund sustainability over a short period of time.
Baquero et al. (2005) After fixing the investment style, hedge funds were reported to be positive for the quarterly returns, weakening the annual sustainability. Kosowski et al. (2007) In addition, I discovered that the best hedge funds exist in the annual perspective. Agalwal, etc. (2009) The maximum persistence is found on the horizon of every quarter, indicating that the sustainability between hedge fund managers is short -lived. Sun et al. (2018) Hedge fund's performance reported that it was sustainable following the weak hedge fund market, but not sustainable following powerful markets. AIKEN and KANG (2023) has found a weak evidence that the manager shows sustainability to the selection skills.
Notable research is BARTH ET AL. (2023) In contrast to the funds registered in the vendor, from 2013 to 2019, it discovered that there was a large persistence between untreated hedge funds, and the hedge fund was found. We provided hopes that can be identified in advance.
Important points
As a whole, survey suggests that the skills and alpha are difficult to acquire in the hedge fund market, especially in commercial databases. In addition, most studies have reported that out -performers cannot repeat their feats over the long term. Investors who are considering hedge funds should not overlook non -listing funds.
The next post explains the risk and diversification of hedge funds.
