The Kensington Hedge Fund 1 (KHF1) forms its strategy around the premise that emerging hedge fund managers outperform their much larger, better known competitors. Statistical analysis prior to the launch of KHF1 had indicated this conclusion, but a new study by the Centre for Asset Management Research in London, UK has also reaffirmed this. Published in July of 2015 Andrew Clare, Dirk Nitzsche, and Nick Motson have statistically confirmed that smaller, newer, hedge fund managers still do outperform their larger more established competitors. The study breaks down the analysis into both size (assets under management), and age to reveal that both have a negative impact on hedge fund performance.
In addition to providing more recent statistical evidence, the article also provides analysis proving that emerging hedge fund managers have also outperformed during recent times of crisis. The study looks at the performance of 7,261 different hedge funds spanning from January 1995 to December 2014, and provides style specific analysis on the four largest fund mandates: Long/Short Equity, Emerging Markets, Event Driven, and Managed Futures. Building on the framework established by Eugene F. Fama and James D. Macbeth in 1973 to estimate parameters in asset pricing models; Clare, Ditzsche, and Motson do a great job proving the emerging manager strategy underlying the Kensington hedge fund mandate.
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