The moment a crisis breaks out, hedge-fund investors should pray they’re in a large fund, which has the capital and market influence to survive, right?
Just the opposite, it appears.
Researchers at City University London found that smaller funds hold up better when the world is going haywire, perhaps because of having fewer “flighty” investors who pull their money out at the first sign of trouble.
On Wall Street, bigger is often synonymous with better—bigger bonus, bigger office, bigger job. However, “on average, investors were better off investing with a small hedge fund instead of a large one in times of crisis,” concludes the July-dated working paper from the university’s Center for Asset Management Research.