This interesting paper (see below) by Ilia Dichev from the Goizueta Business School at Emory University, and Gwen Yu from Harvard Business School shows that investors in the hedge fund industry have earned lower returns in aggregate than would have been on offer from safe T-Bills.  Survivorship bias, self-reporting, time-weighted returns, etc. all have served to flatter the Hedge Fund industry’s returns.

The actual results earned by the industry participants also have come down quite a bit as the industry has gotten larger.  Small and nimble investment funds tend to have certain advantages over their larger more cumbersome brethren.  Ditto for a full industry.  As the Hedge Fund industry has grown from less than $100 Billion in Assets Under Management (AUM) in the early 1990s  to over $1.6 Trillion today, investors today face a more daunting task of finding exceptional managers. Transparency helps.  As just one example of our commitment to transparency, HBA will always proudly display both time-weighted returns and dollar-weighted returns, though only the former is industry practice.

Click here to read the full article.