Is There a Negative Relationship Between Hedge Fund Size and Performance?

Earlier this year, Gatemore commissioned Cass Business School to conduct the most comprehensive study to date on the relationship between hedge fund size and performance. The results, published this morning in a white paper entitled “Are investors better off with small hedge funds in times of crisis?” confirmed that indeed there is a negative relationship between hedge fund size and performance.

Whilst this was true for the overall data set and most strategies such as Event Driven and Long/Short, for certain strategies such as Managed Futures the opposite was true. Furthermore, the study found that this negative relationship was even more pronounced during periods of financial market stress – debunking the myth that larger funds are safer.

As long-time proponents of investing in smaller, niche funds, we were not surprised by these results. Nonetheless we were pleased to have our views confirmed by an academic study, and we are grateful for diligent work done by Professor Andrew Clare and his colleagues at Cass Business School.

An executive summary of the paper can be found here. As you may have seen this story was covered in the FTfm today, a link to which can be found here.