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Hedge Funds: Performance, Risk, and Capital Formation

The Journal of Finance, Vol. LXIII, No. 4, August 2008

44 Pages Posted: 16 Aug 2005 Last revised: 11 Jul 2011

See all articles by William Fung

William Fung

PI Asset Management, LLC

David A. Hsieh

Duke University - Fuqua School of Business; Duke University - Department of Economics; National Bureau of Economic Research (NBER)

Tarun Ramadorai

Imperial College London; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Narayan Y. Naik

London Business School - Institute of Finance and Accounting

Multiple version iconThere are 2 versions of this paper

Date Written: August 1, 2008

Abstract

We use a comprehensive data set of funds-of-funds to investigate performance, risk, and capital formation in the hedge fund industry from 1995 to 2004. While the average fund-of-funds delivers alpha only in the period between October 1998 and March 2000, a subset of funds-of-funds consistently delivers alpha. The alpha-producing funds are not as likely to liquidate as those that do not deliver alpha, and experience far greater and steadier capital inflows than their less fortunate counterparts. These capital inflows attenuate the ability of the alpha producers to continue to deliver alpha in the future.

Keywords: hedge funds, funds-of-funds, performance, alpha, survival, flows, capacity constraints

JEL Classification: G11, G12, G23

Suggested Citation

Fung, William (Bill) and Hsieh, David Arthur and Ramadorai, Tarun and Naik, Narayan Y., Hedge Funds: Performance, Risk, and Capital Formation (August 1, 2008). The Journal of Finance, Vol. LXIII, No. 4, August 2008, Available at SSRN: https://ssrn.com/abstract=778124

William (Bill) Fung

PI Asset Management, LLC ( email )

79 Wellington Street West
Suite 3500
Toronto, Ontario M5K 1K7
Canada

David Arthur Hsieh

Duke University - Fuqua School of Business ( email )

Department of Finance
Box 90120
Durham, NC 27708-0120
United States
919-660-7779 (Phone)
919-660-7961 (Fax)

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Tarun Ramadorai (Contact Author)

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

HOME PAGE: http://www.tarunramadorai.com

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Narayan Y. Naik

London Business School - Institute of Finance and Accounting ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom
+44 20 70008223 (Phone)

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