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Full-Text Articles in Finance and Financial Management
Asset Gathering By Hedge Fund Firms, Melvyn Teo
Asset Gathering By Hedge Fund Firms, Melvyn Teo
Research Collection BNP Paribas Hedge Fund Centre
We explore agency issues within hedge fund firms. We find that firms that launch many funds tend to underperform other firms by between 3 to 5 percent per year after adjusting for risk. These findings are strongest for firms offering funds that pursue many distinct strategies, invest in a variety of geographical regions, locate in a gamut of countries, and offer different base currencies. Our results allow fund investors to distinguish, ex-ante, firms that focus on delivering alpha from those that focus on gathering assets.
The Hedge Fund Explosion: Is The Bang Worth The Buck?, Arindam Bandopadhyaya, James L. Grant
The Hedge Fund Explosion: Is The Bang Worth The Buck?, Arindam Bandopadhyaya, James L. Grant
James L. Grant
Any casual following of the financial news would reveal that hedge funds have experienced phenomenal growth, especially over the last fifteen years. In terms of numbers, there were an estimated 8000 hedge funds in 2005, up from only 500 in 1990. During this fifteen-year period assets under management have grown from an estimated $50 billion to $1.5 trillion. Moreover, the hedgefund industry has spawned a “fund of funds” business, which has slowly become the preferred way of investing in hedge funds, especially for institutional investors. Today, the number of these combination funds is estimated at about 4000. Until recently, hedge …
Flagship Funds At Hedge Fund Families, Melvyn Teo
Flagship Funds At Hedge Fund Families, Melvyn Teo
Research Collection BNP Paribas Hedge Fund Centre
Motivated by the stellar performance of flagship funds such as the Renaissance Medallion fund, we ask whether hedge fund firms (e.g. Renaissance Technologies) have incentives to protect the performance of their flagship funds (e.g. Medallion). We find that the flagship fund tends to outperform other funds within the fund family. The fees and redemption terms of non-flagship funds at launch is correlated with the past performance of the flagship fund. Finally, flagship fund performance has a positive impact on net flows into the other funds within the same family.
The Risk Exposures Of Asia-Focused Hedge Funds, Melvyn Teo
The Risk Exposures Of Asia-Focused Hedge Funds, Melvyn Teo
Research Collection BNP Paribas Hedge Fund Centre
How have Asia-focused hedge funds adjusted their risk exposures in response to the recent financial crisis? By evaluating fund performance relative to an augmented Fung and Hsieh (2004) model, we find that Asia-focused hedge funds have broadly trimmed risk exposures post-crisis. They have reduced their exposure to small stocks relative to large stocks, scaled back their loadings on high yield corporate bonds relative to low yield U.S. sovereign debt, and pared their allocation to the Japanese equity markets. At the same time, however, they are now more exposed to Asian equity markets.
Quantitative Hedge Fund Selection (Part 2), Melvyn Teo
Quantitative Hedge Fund Selection (Part 2), Melvyn Teo
Research Collection BNP Paribas Hedge Fund Centre
Do fund incentives, volatility exposure, and liquidity risk affect fund performance? We show that hedge funds with high performance fees and high water mark provisions tend to outperform those with low performance fees and no high water marks. Moreover, funds that short volatility and embrace liquidity risk deliver significantly higher returns relative to funds that long volatility and eschew liquidity risk. Investors with access to secure capital and managed account platforms may be positioned to take advantage of these performance differences.
The Liquidity Risk Of Liquid Hedge Funds, Melvyn Teo
The Liquidity Risk Of Liquid Hedge Funds, Melvyn Teo
Research Collection Lee Kong Chian School Of Business
This paper evaluates hedge funds that grant favorable redemption terms to investors. Within this group of purportedly liquid funds, high net inflow funds subsequently outperform low net inflow funds by 4.79% per year after adjusting for risk. The return impact of fund flows is stronger when funds embrace liquidity risk, when market liquidity is low, and when funding liquidity, as measured by the Treasury-Eurodollar spread, aggregate hedge fund flows, and prime broker stock returns, is tight. In keeping with an agency explanation, funds with strong incentives to raise capital, low manager option deltas, and no manager capital co-invested are more …
The Liquidity Risk Of Liquid Hedge Funds, Melvyn Teo
The Liquidity Risk Of Liquid Hedge Funds, Melvyn Teo
Research Collection BNP Paribas Hedge Fund Centre
This paper evaluates hedge funds that grant favorable redemption terms to investors. Within this group of purportedly liquid funds, high net inflow funds subsequently outperform low net inflow funds by 4.79 percent per year after adjusting for risk. The return impact of fund flows is stronger when funds embrace liquidity risk, when market liquidity is low, and when funding liquidity, as measured by the TED spread, aggregate hedge fund flows, and prime broker stock returns, is tight. In keeping with an agency explanation, funds with strong incentives to raise capital, low manager option deltas, and no manager capital co-invested are …
Hedge Funds, Managerial Skill, And Macroeconomic Variables, Doron Avramov, Robert Kosowski, Narayan Y. Naik, Melvyn Teo
Hedge Funds, Managerial Skill, And Macroeconomic Variables, Doron Avramov, Robert Kosowski, Narayan Y. Naik, Melvyn Teo
Research Collection BNP Paribas Hedge Fund Centre
Duplicate, see https://ink.library.smu.edu.sg/lkcsb_research/1867/. This paper evaluates hedge fund performance through portfolio strategies that incorporate predictability based on macroeconomic variables. Incorporating predictability substantially improves out-of-sample performance for the entire universe of hedge funds as well as for various investment styles. While we also allow for predictability in fund risk loadings and benchmark returns, the major source of investment profitability is predictability in managerial skills. In particular, long-only strategies that incorporate predictability in managerial skills outperform their Fung and Hsieh (2004) benchmarks by over 17 percent per year. The economic value of predictability obtains for different rebalancing horizons and alternative benchmark …
Hedge Funds, Managerial Skill, And Macroeconomic Variables, Doron Avramov, Robert Kosowski, Narayan Y. Naik, Melvyn Teo
Hedge Funds, Managerial Skill, And Macroeconomic Variables, Doron Avramov, Robert Kosowski, Narayan Y. Naik, Melvyn Teo
Research Collection Lee Kong Chian School Of Business
This paper evaluates hedge fund performance through portfolio strategies that incorporate predictability based on macroeconomic variables. Incorporating predictability substantially improves out-of-sample performance for the entire universe of hedge funds as well as for various investment styles. While we also allow for predictability in fund risk loadings and benchmark returns, the major source of investment profitability is predictability in managerial skills. In particular, long-only strategies that incorporate predictability in managerial skills outperform their Fung and Hsieh (2004) benchmarks by over 17% per year. The economic value of predictability obtains for different rebalancing horizons and alternative benchmark models. It is also robust …