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Mid-sized Asian hedge funds have performed best

Date: Wednesday, June 9, 2010
Author: Albourne Village

GFIA pte ltd, the Singapore based specialist in skill-based managers in Asian and emerging markets, has released a research paper continuing its study of the relationship between a hedge fund’s size, and its performance.

In this paper, providing a comprehensive analysis of the effect of size on performance and volatility across different strategies, GFIA observes that for the bellwether strategy of Asia ex-Japan long-short equity funds, US$250m-US$750m has been the clear performance sweet spot.

Past findings can be summarised as follows:

  • 2008: US$450m to US$750m was the sweet spot for long-short equity managers, against the background of a liquidity-driven bull market
  • 2006: US$150m to US$300m was the sweet spot for long-short equity strategies, in what were probably reasonably normal markets
  • 2004: US$50m to US$100m was the sweet spot for the same universe, in a period where market capacity was more limited

The paper also quantifies the degree of shrinkage of the Asian hedge fund industry over the past three years, finding that on average, 60% of Asian hedge funds are still managing at least 20% less capital than in 2007.

Peter Douglas CAIA, principal of GFIA, commented: “Although the trend is for the performance sweet spot of Asian equity hedge funds to increase over the years, allocators still need to be very aware of the appropriate size of fund to maximise likely performance in Asia. Alpha is never scalable, and our research confirms this. The average size of Asian hedge funds has still not recovered from 2008 redemptions, and there’s therefore a current opportunity for allocators to participate in right-sized funds.”

The white paper is available on request from GFIA, or at www.gfia.com.sg