Size, Age, and the Performance Life Cycle of Hedge Funds

79 Pages Posted: 10 May 2018 Last revised: 23 Sep 2018

See all articles by Chao Gao

Chao Gao

Purdue University, Krannert School of Management

Tim Haight

Loyola Marymount University

Chengdong Yin

Purdue University - Krannert School of Management

Date Written: September 12, 2018

Abstract

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

Gao, Chao and Haight, Tim and Yin, Chengdong, Size, Age, and the Performance Life Cycle of Hedge Funds (September 12, 2018). Available at SSRN: https://ssrn.com/abstract=3169312 or http://dx.doi.org/10.2139/ssrn.3169312

Chao Gao

Purdue University, Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

Tim Haight

Loyola Marymount University ( email )

7900 Loyola Boulevard
Los Angeles, CA 90045
United States

Chengdong Yin (Contact Author)

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

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