New research released Thursday by Preqin’s Hedge Fund Analyst showed that midsized hedge funds outperformed funds of other sizes in 2013.

Hedge funds with assets under management of $100 million to $499 million posted a 12-month average return of 13.8% over 2013, and those with $500 million to $999 million saw an average return of 13.7%.

Large funds with assets of $1 billion to $5 billion and ones with assets of less than $100 million were up 12.1% and 11. 5%, respectively.

Size and Performance

The research found that as fund size increased, the spread of performance between the 25th and 75th percentile returns narrowed. The largest funds showed the smallest dispersion of returns, but those returns tended to be lower than those of funds with less than $1 billion under management.

A lower proportion of midsized hedge funds experienced losses in terms of cumulative returns in 2013, compared with large and small funds. Twelve percent of hedge funds with $100 million to $499 million suffered losses over the year, and just 8% of those with $500 million to $999 million had losses.

Top-performing funds with assets of less than $100 million showed the largest variation in risk-return profile over the three-year period that ended Jan. 31, with these funds exhibiting higher returns and higher volatility than their larger counterparts, according to Preqin.

Twenty-seven percent of midsized hedge funds with $100 million to $499 million under management posted returns in excess of 20% in 2013. By comparison, 19% of hedge funds in the $1 billion-$5 billion range did so.

Different Size Preferences

“Much of the capital inflow into the hedge fund industry over the past few years has been to just the largest funds, with investors looking for the proven track record and experienced investment teams that these larger hedge fund managers often provide,” Amy Bensted, Preqin’s head of hedge fund products, said in a statement.

That appears to be changing this year, Bensted said, as investors are looking at a variety of fund sizes for investment. Different hedge fund investors have different return objectives and risk appetite.

“Performance remains a key factor in the selection process and Preqin’s latest research demonstrates that it is not always the largest funds that are providing the best performance in terms of risk and return,” she said.

Preqin found that 48% of hedge fund investors surveyed said returns were a key factor when looking at a fund manager. In particular, 21% said the potential for better returns from smaller managers was a key reason for preferring funds with less than $1 billion in assets.

The research showed that investors were looking across a wide range of fund sizes in 2014. Funds in the $1 billion-$5 billion group were the most sought after, with 57% of institutional investors looking for funds of that size in 2014.

Fifty-two percent of investors were seeking funds with $100 million to $499 million in assets, and 47% were interested in funds with $500 million to $999 million.

“Those investors which are looking to move away from investing in just the largest funds, but without taking on too much volatility, may choose to look toward investing in those funds with more than $500 million in assets,” Bensted said.