Size, Age, and the Performance Life Cycle of Hedge Funds
86 Pages Posted: 10 May 2018 Last revised: 23 Sep 2018
Date Written: September 12, 2018
This paper examines the performance life cycle of hedge funds. Small funds outperform large funds and small funds maintain good performance over time. One possible explanation for these effects is that expected management fees increasingly outweigh expected incentive fees when funds grow larger over their life cycle. Aside from size, performance life cycle patterns do not vary significantly with a host of fund- and family-level characteristics. Our results suggest that fund growth over time drives performance declines over a hedge fund’s life cycle and that performance persistence is more achievable when funds stay small.
Keywords: Hedge Funds, Performance Life Cycle, Fund Size, Fund Age.
JEL Classification: G23
Suggested Citation: Suggested Citation