The Lost Decade for Hedge Funds: Three Threats

41 Pages Posted: 11 Dec 2019 Last revised: 18 Dec 2019

See all articles by Joseph A. McCahery

Joseph A. McCahery

Tilburg University - School of Law; European Banking Center (EBC); Tilburg Law and Economics Center (TILEC); European Corporate Governance Institute (ECGI)

Alexander de Roode

Robeco Asset Management, Quantitative Investment Research; Netspar

Date Written: November 28, 2019

Abstract

The last decade has challenged the paradigm of the hedge fund industry as a unique performer. We identify three main factors that have affected the operation of hedge funds: competition from mutual funds, the market environment, and tighter regulation. Recent trends in the financial industry have moved asset managers closer to hedge funds by introducing similar underlying strategies, such as liquid alternative funds, to directly compete with hedge funds. We find that such strategies can achieve performance similar to that of hedge funds, thus introducing more competition for hedge funds. Moreover, we find that several hedge fund styles that have traditionally worked well in crisis times—even in the last decade—are also strategies that can be replicated by liquid alternatives. Together with tighter regulation and a strong market environment, these developments continue to put pressure on the hedge fund industry. Our empirical findings add to the existing debate on the performance of hedge funds and the direct competition from liquid alternatives.

Keywords: hedge funds, liquid alternatives, portfolio allocation, alternative investment strategies

JEL Classification: G11, G23, K22

Suggested Citation

McCahery, Joseph A. and de Roode, Alexander, The Lost Decade for Hedge Funds: Three Threats (November 28, 2019). TILEC Discussion Paper No. DP2019-027; European Corporate Governance Institute - Law Working Paper No. 486/2019. Available at SSRN: https://ssrn.com/abstract=3501551 or http://dx.doi.org/10.2139/ssrn.3501551

Joseph A. McCahery (Contact Author)

Tilburg University - School of Law; European Banking Center (EBC) ( email )

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Tilburg Law and Economics Center (TILEC)

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Tilburg, 5000 LE
Netherlands

European Corporate Governance Institute (ECGI)

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Belgium

HOME PAGE: http://www.ecgi.org

Alexander De Roode

Robeco Asset Management, Quantitative Investment Research ( email )

Rotterdam, 3011 AG
Netherlands

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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