Register  
Emerging managers add twice the alpha
Tuesday, 5 June 2012 12:45pm

The performance of emerging manager hedge funds is roughly twice that of established manager hedge funds over the past 20 years, according to new research.

This is despite large hedge funds attracting most of the inflows, said Peter Urbani, formerly chief investment officer at Infiniti Capital, who conducted the research using the Eureka Hedge database.

An emerging manager is a new manager that has been in operation less than three years and which has less than $300 million in FUM, but they are not necessarily boutique managers.

Urbani said, "Over the full 19.25 year period of the study from 1993 to March 2012, the Emerging Managers proxy generated an excess CAGR of 3.66% pa over and above that of the Established Managers that returned 4.13% arithmetic excess. This translates into a 99.84% cumulative total out-performance."

Urbani said, however, that, "Emerging Managers do have periods of relative underperformance typically following market peaks and crisis periods, eg in 1997-98, 2002-04 and 2009-10. This probably reflects a decline in issuance of new funds immediately following such periods but is a topic for further investigation".

The conclusion, he said, is that emerging managers perform better than established managers on almost every performance and risk measure.

"Even if we assume half of the excess returns are attributable to survivor and other biases (other research has indicated they are of this sort of magnitude), the excess alpha of around 200bp pa is still more than enough to cover the full cost structure of most institutional funds," he said.

Urbani added that at launch the average Hedge Fund had $26 million in FUM and that it takes an average 16 months to grow above $100 million. Only 4% of funds ever managed to grow their FUM above $1 billion.

More disturbingly, Urbani said, "After 84 months (7 years ) the average annual arithmetic return of a fund falls to the long run average of 8.52% pa irrespective of when the fund was launched".

"If Smaller and emerging hedge funds truly pose the equivalent of the 'Small Cap' effect in equities, as the research suggests, this is likely to prove costly to those who fail to consider them," he added.

Blogs
Follow the industry experts.
Christopher Page
Christopher Page
Managing Director

The age of SMSFs
The growth of the number and volume of self-managed super funds (SMSFs) seems to have no end. As the sector reaches the one million ...read more
 
Benjamin Ong
Benjamin Ong
Chief Economist

Reflation, rotation and the taper
'Tis being my final type (drivel, to some gentle readers) for the year, we'll take a look back at the 2013 that was to seek the lessons ... read more
 
Alex Dunnin
Alex Dunnin
Director of Research & Editorial Services

BRUMBIE: Walk quietly but carry a big stick
It's now a few weeks since Financial System Inquiry (FSI) chief David Murray handed down his interim report and already sectional advance ... read more
News Search   
VideoBrought to you by
Who wants to be a RockStar 2014 Highlights
Count's Chris Mekhail was crowned 2014 Rockstar this year for his soaring rendition of Swedish House Mafia hit 'Don't You Worry Child' at the annual Who wants to be a RockStar event organised by the Finance ... Watch video
Member Awareness
Lawyer involvement in the claim assessment stage can lead to the member being financially worse off and increases claims administration costs. What can be done to reduce lawyer involvement in the claim ... Watch video
Claims Management
Is the industry doing enough to engage employers in relation to their role in the claims process? Comments by: Annette Torrington -CommInsure, Pauline Vamos - Association of Superannuation Funds Australia ... Watch video
Platinum Asset Management
Reflecting on more than three decades in the industry, Platinum Asset Management managing director Kerr Neilson says one of the changes in the industry has the been the erosion of the information advantage ... Watch video
AMP Capital Australian Equity Concentrated Fund
We invite you to watch our latest video program on FSiTV featuring AMP Capital's Co-Head of Australian Fundamental Equities Gian Pandit, as interviewed by Mark Smith, deputy editor of Financial Standard. In ... Watch video
MAX 2014 Highlights
The annual MAX forum places all the movers and shakers in financial services when it comes to sales, marketing and distribution. Find out the recipe of those who are taking the lead. Watch the video n ... Watch video
Get it
Daily
FREE to your inbox, get the Financial Standard Daily Email.
Get the Free
iPad app
Download the Financial Standard iPad app for FREE
Industry
Events
AUG
21
AUG
26
Best Practice Forum: Managed Accounts
SEP
10
Risk and Liquidity Forum
11
Liability Driven Investing Forum
OCT
07
Major Market Players Symposium
15
Investment Performance Measurement, Attribution & Risk Management
News
Bites
Advertisement

$245 (inc GST) for 1 year
 
 
Copyright © 1992-2014 Rainmaker Group
All material on this site is subject to copyright. All rights reserved. No part of this material may be reproduced, translated, transmitted, framed or stored in a retrieval system for public or private use without the written permission of the publisher.
Link to something Jtd3Lqlp