1. 1 Global Asset Allocation: Global Asset Allocation: Fund Age and Hedge Fund Returns Finance 453: Global Asset Allocation and Stock Selection Campbell R. Harvey Duke University, Durham, NC USA National Bureau of Economic Research, Cambridge MA USA Cam.harvey@duke.edu +1 919.660.7768 office || +1 919.271.8156 mobile http://www.duke.edu/~charvey

2. 2 Fund Age and Hedge Fund Returns Do younger funds outperform older funds? Popular Press The Financial Times recently wrote about a PerTrac study* claims that funds less than 2 years old greatly outperform funds that are more than 2 years old However, there are reasons to be sceptical of such evidence. PerTrac study does not control for other important (and obvious) factors. As such, the results could be spurious. What is the evidence is a scientific analysis of age and return? *May 19, 2008, http://www.pertrac.com/per0020/web/me.get?web.websections.show&PER0020_1278

3. 3 Fund Age and Hedge Fund Returns Do younger funds outperform older funds? Conducting a scientific study Survivorship. PerTrac study admits that younger fund sample suffers from greater survivorship problem. This would bias the results in favour of finding a higher return in young funds. Host of other factors* such as: –Previous year’s incentives –Discretion (lock up, notice, redemption periods) –Past performance –Past volatility (controlling for risk) –Management fees –Fund strategy (want apples to apples comparison) PerTrac study does not control for any of these factors *This list of control variables is meant to be illustrative rather than comprehensive.

4. 4 Fund Age and Hedge Fund Returns Do younger funds outperform older funds? New financial research “Role of managerial incentives and discretion in hedge fund performance,” 2007 working paper, by Vikas Agarwal (Georgia State University), Naveen D. Daniel (Drexel University) and Narayan Naik (London Business School).* Study is in advanced stages of peer review at the Journal of Finance (the top scientific journal in the field of finance) None of the authors are affiliated with GLG Partners In contrast to the PerTrac study, this research –Uses a much more comprehensive sample of funds: the union of HFR, TASS, MSCI and CISDM databases –Conducts analysis of returns and age controlling for other factors *http://papers.ssrn.com/sol3/papers.cfm?abstract_id=889008

5. 5 Fund Age and Hedge Fund Returns Do younger funds outperform older funds? New financial research: Findings PerTrac study claims a 551bp per annum difference between the youngest and oldest fund returns Journal of Finance paper shows a statistically insignificant and economically small difference of 20-40bp Conclusion of the research paper is that there is no scientific evidence linking fund age to diminished performance In addition, even with the Journal of Finance study, survivorship could be an issue which could account for the 20-40bp difference.