The performance of hedge funds is one of the most written about topic in the financial media. Headlines herald each week's hedge fund performance compared to stocks, as if this information is actually useful for investors. The publication of hedge fund performance is dominated by hedge funds, their industry groups, and the "service providers" who depend on hedge funds for access and information.
No wonder then that reported hedge fund performance is often shown in a positive light. A typical study or "white paper" takes a snapshot of hedge fund performance (a week, month, quarter, year, etc.) and state or implies that the performance in that time period is indicative of hedge fund performance in general. At the same time as the industry piles on self-interested analyses, academics have been studying the issue of hedge fund performance with more rigor and over a longer time frame. Unfortunately, academics don't have the stage or the resources to counter the industry's voice. Further, their research is normally presented in academic papers that are difficult for investors to understand.
Two recent papers summarize the academic literature on hedge fund performance for the past two decades providing a tremendous help for investors: "Hedge Funds: A Survey of Academic Literature,” by Vikas Agarwal, Kevin A. Mullally and Narayan Y. Naik (2015) and "Hedge Funds: A Dynamic Industry in Transition,” by Mila Getmansky, Peter Lee and Andrew Lo. These papers combines provide summaries cover the research of over 200 academic articles spanning "hedge fund era" of 1990 until today. The findings are highly critical of the claims made by hedge funds for their own performance. (See Hedge Fund Performance: The Industry Case). Below are representative findings of these research summaries:
Hedge fund return-generating processes
Manager skill in hedge funds
Relation between investor flows and fund performance
About Ezra Zask
Ezra Zask has spent over 30 years in the finance and investment areas, providing research and consulting to investors and investment management companies. He has founded and managed a hedge fund, fund of funds and investment advisory firms, ans held senior positions in hedge funds and investment advisory firms. He has taught at Princeton and Yale graduate schools and written extensively including a best-selling book, All About Hedge Funds, Second Edition (McGraw Hill: 2013)