A new study tried to identify the characteristics of consistently successful hedge funds. It found that smaller hedge funds are more likely to perform consistently better over time. With larger funds, older funds end to under perform, but age doesn’t make a difference with smaller funds.
Though the study found that younger funds tended to outperform their older peers, age didn’t matter as much for smaller hedge funds.
“Our analysis suggests that investors are more likely to earn higher returns by investing in small hedge funds,” the authors wrote.
Other studies have shown that hedge funds’ compensation structures are often not effective in aligning managers’ incentives with investors’ interests. Management fees tend to comprise a larger portion of total compensation for fund managers as their company grows.