Hedge funds with $100 million or less in assets underperformed hedge fund giants for the first time since 1996, PerTrac Financial Solutions found.

Funds with $100 million or less in assets lost 17.03% in 2008, while those with assets of $100 million to $500 million lost 16.04%, and those larger than $100 million lost 14.10%.


That reversed a longstanding trend for the full history of the indexes, beginning in 1996, when small funds delivered an annualized return of 13.05% through 2007, compared with 9.99% for medium-sized funds and 9.28% for large funds.

“There are several possibly reasons why small funds underperformed their larger peers for the first time ever in 2008,” said Meredith Jones, managing director at PerTrac. “Larger funds generally have more cash on hand and greater access to lines of credit than small funds, better enabling them to handle redemption requests without compromising their portfolios’ performance.”

The market’s sharp volatility and the shakeup of the banking industry and the credit markets also drove investors to larger companies, Jones added.

Younger funds, however, continued to outpace their older counterparts. Hedge funds with the shortest track record lost 11.31% in 2008, compared to losses of 19.46% and 17.85% by mid-ad and older hedge funds. Over the full history of the indexes from 1996 through 2008, young funds with less than two years in business have generated an annualized return of 15.74%, while mid-age funds two to four years old and funds older than that have trailed with annualized returns of 11.48% and 10.132%, respectively.

“Last year was a difficult one for hedge funds of all ages and sizes, but once again we saw younger funds outperforming older ones, confirming our findings from earlier studies,” Jones said.

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