The Impact of Minimum Investment Barriers on Hedge Funds: Are Retail Investors Getting the Short End of Performance?

Loading...
Thumbnail Image
Date
2009-01-05T22:29:59Z
Authors
Huang, Kelvin
Keyword
minimum investment , retail investor , probability omega , performance metric , managerial self-selection , funds characteristics
Abstract
Using paired tests of high and low minimum investment group funds on several performance measures for hedge funds and funds-of-funds from 1991-2005, we find that funds imposing a higher entry fee requirement on their investors produce significantly better performance both on a raw basis and a risk-adjusted basis. Differences in the performance of the high and low entry fee funds are found to be less significant economically and statistically in later years, suggesting a diminishing gap in performance differences. We also find that there is considerably more cross-sectional dispersion in investing in funds with lower minimum investment levels, which indicates a much higher level of fund selection risk for undiversified investors desiring investment in funds with low entry fee barriers.
External DOI