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Hedge Fund Performance Persistence: Do the Country of Domicile and the Investment Strategy Matter?

In this paper, we investigate the performance persistence of 5619 Alternative Investment Funds (AIFs) between 1995-2016. We focus on the world’s four most saturated domiciles (United States of America USA, Cayman Islands CAYI, Luxemburg LUX and Ireland IRL) and the four most commonly employed strategies (Long-Short-Equity LSE, Fixed-Income FIX, Commodity-Trading-Advisors CTA and Multi-Strategy MLTI). We investigate a feature of AIFs that is overlooked in the academic and professional literature: the combined impact of geolocation and investment style. We report performance persistence in almost all cases when analysing the individual domicile or strategy. However, the combination of domiciles and strategies reveals weak persistence in some cases and no persistence or complete reversal in others. The results of our cross-comparison show that the sole reliance on the individual domicile/investment strategy focused clusters can be grossly misleading and lead to capital losses.