Alternative Viewpoints: Sustainable Hedge Fund Performance

Dr. Daniel Capocci, CAIA

Mon., Mar 31 - AllAboutAlpha.com

Three fields exist that examine hedge fund performance. The first includes studies that compare the performance of hedge funds with equity and other indices (some authors conclude that hedge funds are able to outperform these indices, whereas others are more cautious in their conclusions). 

The second field of hedge fund performance analysis compares the performance of hedge funds with that of mutual funds (where some have found that hedge funds constantly obtain superior performance to mutual funds, although lower and more volatile returns than the reference market indices considered.) 

Finally, the third group of hedge fund performance analysis examines the persistence of hedge fund returns.  Persistence is particularly important in the case of hedge funds because the hedge fund industry has a higher attrition rate than mutual funds.

The results have been mixed.  Some researchers have found that offshore hedge funds have positive risk-adjusted returns but attribute this result to style effect and conclude that there is no evidence of particular skill.  Others find evidence of persistence in hedge fund performance, particularly for poor performing funds that continue to underperform.

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