Bigger is not always better

A study by the BNP Paribas Hedge Fund Centre at SMU has found that the larger the hedge fund, the lower its return. Director of BNP Paribas Hedge Fund Centre, SMU Professor of Finance Melvyn Teo, the author, said that the finding that capacity issues impact macro fund performance raises fresh questions about the liquidity of the assets that macro funds trade. In terms of geographic regions, Prof Teo says that while the study finds that the diseconomies of scale are pervasive across the majority of the investment regions examined, it is surprising that funds operating in the Asian and Latin American markets are largely free of such constraints. For the study, Prof Teo obtained the data from the TASS, HFR and BarclayHedge databases and on the 1994-2011 period. The sample includes 36,346 funds of which 22,725 stopped reporting by the end of the sample period in December 2011.