When you think about it, it makes sense: young hedge funds will perform better because they’re hungry and still have the drive to do well, compared with their complacent, more experienced counterparts. But how much better is a shocker. According to Hedge Fund Research, annualized returns over a 10-year period to December 2004 of HFs under 2 years old were 16.91% – 1,000 basis points above the overall 6.38% for all funds. Even over five-years, based on the HFR figures, the young ones blew away the more established hedge funds: 11.13% vs. 5.17%. That will not be lost on investors, especially in these times when returns – notwithstanding the healthy quarter hedgies just enjoyed – have not been what they used to be. “The gap is significant even after taking account of the failure rate of start-ups,” namely survivor bias, Stephen Oxley of Pacific Alternative Asset Management told a recent conference. It should be noted that last month, a study concluded the same thing about private equity. The lesson elders need to learn, it appears, is how to keep the fire under them burning.
