Hedge funds,fund attributes and risk adjusted returns |
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Authors: | Gökçe Soydemir Jan Smolarski Sangheon Shin |
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Institution: | 1. Department of Accounting & Finance, College of Business Administration, California State University-Stanislaus, One University Circle, Turlock, CA, 95382, USA 2. Department of Accounting, College of Business Administration, University of Texas – Pan American, 1201 West University Drive, Edinburg, TX, 78539, USA 3. Department of Economics and Finance, College of Business Administration, University of Texas – Pan American, 1201 West University Drive, Edinburg, TX, 78539, USA
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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. |
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