Nimble hedge funds outpace large rivals
Small hedge funds have used their ability to manoeuvre in and out of the markets with greater ease to outstrip the performance of their larger rivals this year, according to new research, and in some cases almost double the level of returns to investors.
Funds managing less than $100m (€71m) made 9.7% between the start of the year and the end of May, while those with less than $500m returned 9.4%, according to analysts at Eurekahedge. These figures compare to the 5.2% that hedge funds managing over $500m made for their clients over the same period.
In a report on hedge fund performance published last month, Eurekahedge wrote: "They have been able to alter their allocations and exposures faster than larger managers when the markets reversed course, given the lower volume of trades they engaged in.”
Bill Maldonado, head of alternatives at Halbis, the active management unit of HSBC Global Asset Management, said some hedge funds that could take large bets on the direction of markets had a hard time adapting quickly to changed conditions.
Maldonado said: "The promise of a lot of long/short funds was that they would carry a long bias with leverage in a market when the market was going up, and there was an inference that they would be able to turn exposure around very quickly and go short, but in fact that did not happen.”
By beating the performance of their larger rivals, smaller hedge funds have also reasserted a trend of outperformance dating back to 1996, according to software firm PerTrac Financial Solutions.
Meredith Jones, PerTrac's managing director said that from 1996 to the start of last year, funds with less than $100m made 13% a year, compared to 10% from those running more than $500m.
However, a 17% loss from small portfolios last year was worse than the 14.1% fall from their large competitors. Jones said that this might have been the result of smaller funds finding it harder to meet large redemption requests from investors, with larger rivals having more cash to cushion the blow of withdrawals.
Hedge funds made 5.3% by the end of May, Eurekahedge said. Their losses last year varied between 11.6%, measured by Eurekahedge, to 19% published by peer Hedge Fund Research. Different funds report to different data providers, which causes the difference.
--write to dwalker@efinancialnews.com
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