Smaller and newer hedge funds have better performance, according to an analysis from PerTrac Financial Solutions, an investment software developer. Meredith Jones, managing director, analyzed 12 years of hedge fund data for the period from Jan. 1, 1996, through Dec. 31, 2007. Using two measures, fund size (less than $100 million, $100 million-$500 million and over $500 million) and fund age (up to two years old, two to four years and over four years), Ms. Jones sorted hedge funds into these categories and calculated the mean monthly fund return to create three age-based indexes and three indexes based on fund size.
Ms. Jones analysis of the size-related index found that the smallest funds had the best average performance in 2007 at 11.74% compared with 10.27% for medium-sized funds and 10.22% for the largest funds. Over the 11-year period, the smallest funds returned an annualized average return of 16.01%, compared with 12.5% for the middle category of funds and 11.5% for the biggest.
The same pattern was repeated when hedge fund returns were analyzed by age. In 2007, funds less than two years old returned an average of 15.02%, followed by funds older than four years with 9.53%, and those between two and fours years old, 9.45%. Annualized returns over the 12-year period for the youngest funds averaged 18.33%, compared with 14.55% for the middle-term funds and 12.84% for the oldest funds.