Hedge fund performance: 1990-1999

Using a large database, I studied hedge fund performance and risk during an almost 10-year period front 1990 to mid-1999. The empirical results show t hat hedge funds had an annual return of 14.2 percent in this period, compar ed with 18.8 percent for the S&Z 500 Index. The S&P 500 is much more volati le, however, than hedge funds as a whole. Annual survivorship bias for hedg e funds was 2.43 percent. I examined year 1998 in detail because hedge fund s were heavily affected by the global financial market tumble in that year. For example, the highest volatility for hedge fund returns occurred in 199 8, and more funds died and fewer were born in 1998 than in any other year o f the period studied. Few funds changed their fee structures. In those that did, the fee changes were performance related; poor performers lowered the ir incentive fees.