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Portfolio > Alternative Investments > Hedge Funds

Database Study Debunks Survivorship-Bias Myth, Showcases Industry Growth

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RENO, Nev. (–Although many hedge fund databases seem to be alike, a new survey found that databases differ significantly in the information they contain, especially in the funds they list. Also, while many in the industry assume that databases are full of “dead” names or funds that are no longer reporting, the company that conducted the survey, Strategic Financial Solutions, found that most database funds are alive and reporting.

The software firm completed a study of the hedge fund listings from 12 of the major hedge fund databases and found that more than 90% of the included funds had updated their database information within the previous 90 days.

“The 90% figure is a very good thing for the industry in that the quality and timeliness of the data is there,” said Meredith Jones, director of market research at SFS.

The databases examined in the study were: Alternative Asset Center; Altvest from InvestorForce; Barclay’s Global HedgeSource; Center for International Securities and Derivatives Markets; Cogenthedge; Eurekahedge Asian Hedge Fund Database; Eurekahedge European Hedge Fund Database; Eurekahedge Fund of Hedge Funds Database;, Hedge Fund Research, MSCI Hedge Fund Classification Standard indexes and database; and Tremont* TASS (Europe) Ltd.

The databases have a combined headcount of 24,627 funds. The SFS researchers found, though, that about 8,100 hedge funds and funds of hedge funds were distinct to each database once all the duplicate funds were removed. Of that number most were single-manager hedge funds; only 2,600 were funds of funds.

Most of the funds were “clone” funds, with 900 being managed in a similar fashion to original funds in either an onshore or offshore structure.

SFS estimates that both single-manager hedge funds and funds of funds are launching at an increasing rate and notes that new funds generally do not appear on databases immediately. It’s also thought that many hedge funds report only to a single database, which means that serious investors need to use multiple data sources for their hedge fund screening and analysis.

The number of hedge funds and their proliferation was not surprising to Ms. Jones, she said, although she was quick to say that it’s hard to assign a definitive size to the industry. The most surprising figure was that assets under management for single hedge funds totals US$1.5 trillion. That’s 50% greater than the most commonly heard estimates of a total approaching US$1 trillion. The survey also found that about 175 funds manage more than US$1 billion or more each.

SFS also found that a majority of hedge funds manage less than US$25 million each. If that finding is an accurate reflection of the industry, it would indicate that there could be a large number of managers who would not be required to register as investment advisers with the U.S. Securities and Exchange Commission when the SEC’s finalized regulation is in place. At the same time, a number of those smaller funds may be under the same roof, meaning that some of those managers might actually have more in assets under management.

This is the second time SFS has completed such a study, which looked at the database constituents as of mid-year 2004. The research is part of an ongoing effort by the firm to provide aggregate investment information to their clients and the general public.

The firm has stepped up its alternative investment database constituents, most recently adding Alternative Asset Center’s database to its stable .

Contact Bob Keane with questions or comments at: [email protected].


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