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Practical Applications of Hedge Fund Illiquidity, Age and Performance

The golden age of hedge funds may be over, according to Haim Mozes and John Launny Steffens of Spring Mountain Capital. Mozes and Steffens offer a critical new insight into how age and size factors affect hedge fund performance, demonstrating how an illiquidity premium is responsible for the deleterious effects of both factors. Mozes, who also teaches at Fordham University , and his Spring Mountain colleague Steffens show that not only do older funds and those experiencing recent inflows underperform their peers, but they also tend to have fewer illiquid investments in their portfolios “The truth is that the illiquidity premium is very hard to measure,” explains Mozes in this interview with Institutional Investor Journals. “I came across an insight from Andrew Lo that I intuitively recognized: the idea that you could estimate the extent to which a hedge fund holds illiquid assets by examining how strongly its returns are correlated,” he explains.