For 2013, mid-sized hedge funds—those with $100 million to $999 million in AuM—posted the highest average returns compared to other hedge fund sizes, according to Preqin.
In particular, mid-sized hedge funds with between $100 million and $499 million AuM fared the best, returning 13.79% for the year, and mid-sized funds with between $500 million and $999 million posted average returns of 13.71%. Meanwhile, large funds with $1 billion to $5 billion in AuM performed well, just not as high, with 12.08% average returns. Small funds with less than $100 million AuM returned 11.45% in 2013.
Also, a lower proportion of mid-sized hedge funds saw losses in 2013 compared to other-sized funds. For hedge funds with between $100 million and $499 million AuM, only 12% saw cumulative return losses, while only 8% of mid-sized funds with between $500 million and $999 million saw losses.
Funds with between $100 million and $499 million AuM also had the highest proportion, 27%, of returns in excess of 20% in 2013. In comparison, 19% of large funds with $1 billion to $5 billion in AuM broke the 20% returns mark.
“Much of the capital inflow into the hedge fund industry over the past few years has been to just the largest funds, with investors looking for the proven track record and experienced investment teams that these larger hedge fund managers often provide. However, our analysis shows that investors are looking at a variety of fund sizes for investment in 2014 and different investors have different return objectives and risk appetite from their hedge fund investments. Performance remains a key factor in the selection process and Preqin’s latest research demonstrates that it is not always the largest funds that are providing the best performance in terms of risk and return…The size range $500-999 million had the lowest proportion of funds suffering a loss in 2013, and the longer term return and volatility characteristics of these funds are similar to funds with assets of more than $1 billion. Therefore, those investors which are looking to move away from investing in just the largest funds, but without taking on too much volatility, may choose to look towards investing in those funds with more than $500 million in assets,” says
Amy Bensted, head of hedge fund products at Preqin.
Preqin’s report also found that as fund size increases, the performance gap between the 25th and 75th percentile returns narrows, with the largest funds showing the smallest dispersion of returns. Still, the majority of institutional investors surveyed, 57%, are seeking funds in the $1 billion to $5 billion AuM range for 2014, while 52% of investors are looking at funds with between $100 million and $499 million AuM, and 47% are seeking funds with $500 million to $999 million.
When looking at fund managers, 48% of investors said that returns are a key factor, and 21% said that the better returns from smaller managers is a key reason for preferring funds with less than $1 billion in assets.
Lastly, the top funds with assets of less than $100 million showed the largest variation in risk/return profile over the three-year period ending January, 31 2014, with these funds exhibiting higher returns and higher volatility than their larger counterparts.
Mid-Sized Hedge Funds Performed Best in 2013, Finds Preqin
For 2013, mid-sized hedge funds—those with $100 million to $999 million in AuM—posted the highest average returns compared to other hedge fund sizes, according to Preqin.
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