According to a press release, the data used in the study authored by managing director at PerTrac Meredith Jones was compiled using PerTrac’s investment analysis and asset allocation software that ran two different analyses: one based on asset size and another based on fund age.
For the asset size indexes, which included group size to $100 million, over $100 million and up to $500 million, and over $500 million, the statistics suggest that as funds get larger, monthly returns decrease in magnitude but also become steadier, or less risky. More specifically, both the annualized return and annualized standard deviation were greatest for the smallest funds, at 15.46% and 6.31%, respectively. They were lowest for the largest funds, at 11.93% and 5.72%, respectively.
In terms of the age-based analysis, the index of youngest funds generated better returns over the 127-month period than either than mid-age or oldest funds and also had the best risk profile of the three groups – up to two years, two to four years, and over four years. The index of youngest funds produced an annualized return of 17.5% versus 11.84% for the oldest index, and an annualized standard deviation of 5.97%, versus 6.39% for the mid-age index, which ranked worst of the three on volatility.
Simulated future returns also showed the youngest funds outperforming on both return and risk, with the oldest funds likely to generate both the lowest long-term returns and the worst drawdowns, according to PerTrac.
The study – Examination of Fund Age and Size and Its Impact on Hedge Fund Performance – was published in the February 2007 issue of the investment journal Derivatives Use, Trading & Regulation.