Overseas hedge funds have been a topic of interest and discussion for many investors. One key aspect that investors like to look at when choosing a hedge fund is their elimination rate. This rate determines the number of hedge funds that fail to surpass the market benchmark and end up closing down. So, what is the elimination rate of overseas hedge funds?
To get a better understanding of the elimination rate, lets first define what it is. The elimination rate is the percentage of hedge funds that have closed down or merged with another hedge fund in a particular year. This rate can give investors an idea of how tough the competition is among hedge funds and how well they are faring against each other in the market.
According to a study by Hedge Fund Research, the elimination rate of overseas hedge funds was 20.19% in 2019. This is a decrease from the 2018 elimination rate of 22.08%. However, it is still a relatively high percentage, indicating that many overseas hedge funds are unable to beat the market benchmark.
Several factors can contribute to a hedge funds elimination rate. One of the main factors is poor performance. Hedge funds are judged by their returns, and if they consistently fail to generate returns or underperform the market benchmark, they will struggle to attract and retain investors. This can lead to a decrease in assets under management, making it quite challenging for the hedge fund to maintain operations.
Another factor that can lead to a hedge funds elimination is a lack of diversification. Hedge funds that have a large concentration of assets in a particular sector can be at risk if that sector experiences a downturn. They must ensure that their portfolios are well-diversified to minimize the risk of significant losses and maintain stability.
Finally, rising costs can also contribute to a hedge funds elimination. As operational costs increase, hedge funds must generate higher returns to maintain profits. This can be difficult during periods of market turbulence or when costs are higher than expected.
Despite the challenges, its important to note that the elimination rate of hedge funds varies across different regions and sectors. For example, certain hedge funds perform better in a particular market or investment avenue. Additionally, the elimination rate can vary depending on the timing of investments or the duration of the investments.
In conclusion, the elimination rate of overseas hedge funds was 20.19% in 2019, indicating that many hedge funds struggle to surpass the market benchmark. Several factors, including poor performance, lack of diversification, and rising costs, can contribute to a hedge funds elimination. Its essential for investors to keep these factors in mind and conduct thorough due diligence before investing in any hedge fund.
