Performance of Hedge Funds

CFA Institute

On the Performance of Hedge Funds Author(s): Bing Liang Source: Financial Analysts Journal, Vol. 55, No. 4 (Jul. - Aug., 1999), pp. 72-85 Published by: CFA Institute Stable URL: http://www.jstor.org/stable/4480184 . Accessed: 24/09/2013 15:48

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On

the

Performance

of

Hedge

Funds

Bing Liang

from evidenceindicatesthat hedge funds differsubstantially Empirical investmentvehicles,such as mutualfunds. Unlikemutual traditional funds, hedgefunds follow dynamictrading strategiesand have low align systematicrisk. Hedgefunds' specialfee structuresapparently Funds with "high with fund performance. managers' incentives to are watermarks" (underwhichmanagers required makeup previous those outperform fees) significantly any receiving incentive lossesbefore and ratiosthanmutualfunds, higher Sharpe without. Hedgefunds provide 1996 December 1992 through in of theirperformance theperiod January reflectsbettermanagerskills, althoughhedgefund returnsare more to are returns related positively incentivefees, volatile. Average hedgefund period. fund assets,andthelockup

edge funds are private investment partnerships in which the general partners make substantial personal investments....