In searching for the right hedge funds, sophisticated investors are often guided by certain preset parameters to protect against headline risk. Whether guided by consultants, prime brokers, or partners, many investors end up honing in on the usual suspects of managers. This is one reason why large, well-established funds get even bigger. Some are quite remarkable; but many others, not so much.
And herein lies the allocators’ dilemma. While this selection approach may protect against getting tagged for being in an unfamiliar fund that fizzles, it’s not necessarily going to produce the most desirable long-term results.
There’s an expanding body of research that shows looking outside the box at proven, lesser-known managers—that pass essential due diligence—may better help investors get to where they want to be. And many do so with less investment risk than larger funds.
This brief analysis helps investors navigate the gap between conventional and opportunistic fund selection and finds unexpected inspiration in what Michael Lewis discovered writing Moneyball. Download the report to learn more.