New Hedge Fund Research Suggests Hedge Fund Alpha Closer to Zero

Hedge fund managers used to be the upper echelons of the investing world. They were the men (and women) that were most quoted, most talked about and most followed, but things may be changing. Hedge fund performance has not been nearly as strong lately as it once was. Even legendary hedge fund managers like John Paulson have been producing less than impressive returns. Research has even suggested that a monkey may be better at picking successful hedge funds than funds of funds. So, where is hedge fund alpha?

PAULSON & CO

New Hedge Fund Research Suggests Hedge Fund Alpha at 5 Basis Points

The Financial Times reports the hedge fund industry at large delivers risk-adjusted returns of essentially zero according to new research conducted by three academics – Christopher Clifford, Adam Aiken and Jesse Ellis. They concluded, “The average excess return of hedge funds does not differ markedly from zero. The implications of this result are large.” Whereas previous research suggested that the typical hedge fund delivered 3-5 percentage points over risk-adjusted returns, or “alpha,” the research of this trio pegs the number closer to 5 basis points. Clifford, who is an assistant professor of finance at the University of Kentucky, says, “Most of the research on mutual funds has not found alpha on average, while that on hedge funds has, and it has been a bit of a puzzle why. We don’t find the average hedge fund has any alpha.”

The Issue of Hedge Funds Reporting Performance

One glaring issue in any hedge fund research is the fact that many, if not most, hedge funds do not report their data to industry databases or make their performance public in general. “Messrs Clifford, Aiken and Ellis attempted to get around this by analysing the holdings and returns of funds of hedge funds registered with the US Securities and Exchange Commission between 2004 and 2009, which identified 1,445 separate hedge funds,” reported the Financial Times. “Of those funds, those that reported their returns to commercial databases produced average alpha of 92 basis points a quarter, in line with the 3-5 per cent annual return commonly cited. However, when the returns of funds that do not report to databases are factored in, the average falls to just 5bps.”

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!