Hedge funds, fund attributes and risk adjusted returns

Gokce Soydemir (), Jan Smolarski () and Sangheon Shin ()

Journal of Economics and Finance, 2014, vol. 38, issue 1, 133-149

Abstract: We use proprietary data to examine factors that lead hedge fund managers to offer hurdle rates and investigate relative hedge fund performance based on risk-adjusted returns. Using data from 3,571 hedge funds over a 15 year period, we find that funds that do not offer a hurdle rate outperform those that do. Funds offering a high watermark charge substantially higher performance fees. Further, emerging market, fixed income, and funds of funds are significantly more likely to offer a hurdle rate than other types of funds. Performance fees have a positive impact on the likelihood of offering a hurdle rate. Fund leverage and management fees are negatively associated with hurdle rates. The cross-sectional regressions show that funds, which offer a hurdle rate, underperform those that do not. Funds that charge a high performance fee appear to outperform those that charge a relatively low fee. The results are consistent with the view that those managers who wish to improve risk-adjusted returns should not focus on hurdle rates. Copyright Springer Science+Business Media, LLC 2014

Keywords: Hedge Funds; Hurdle Rates; High-Watermarks; G11; G24 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s12197-011-9217-4

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