Investing in Early Stage Hedge Funds

by Marcel Herbst / Harcourt AG

Consider well the proportion of things: It is better to be the young sparrow than the old bird of paradise. (Mark Twain)

Investing in young and small hedge funds is an exciting part of our industry: not only do these (sparrows) tend to outperform their larger and older peers on a risk adjusted basis: they frequently offer an array of advantageous investment conditions for the investor. ...

There is strong evidence that decreasing returns to scale means that hedge funds with high AUM and large inflows are likely to dilute their future returns.

One of the key advantages of an investment in early stage hedge funds is definitely the increased return expectations.

...young funds can invest more nimbly and proactively by focusing their portfolio on their very best ideas. Also, they are simply hungrier to succeed (we refer to it as "more sweat per AUM"). To put it bluntly: Billionaires can afford to work less hours.

...capacity rights with the leading talents of tomorrow are extremely valuabe...

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