Investors in emerging hedge fund managers’ first funds tend to enjoy higher returns than if they had allocated to a new fund managed by an established firm, according to alternative asset industry information provider Preqin.
However, first-time funds are more volatile than ones managed by experienced firms, and many investors are holding onto their money. Those interested in first-time funds has dropped to 38% this year, down from 42% of investors in 2012.
The average long/short hedge fund launched by an emerging manager since 2007 delivered annualized net returns of 8.8% in its first three years of trading, compared with an annual rate of 5.4% from new funds managed by established firms.
The average annualized volatility of returns during the three years following inception was approximately 14.7% for established manager long/short funds versus 17.3% for emerging manager long/short funds.
“With more first-time fund groups in the market than ever before, following the fallout of the Volcker Rule and revived optimism in the industry, finding the potential star of the next generation is an increasingly difficult task, and one many investors are unwilling to enter into,” Preqin’s associate commercial manager for hedge funds Graeme Terry said in a statement.