Big Hedge Funds vs Small Hedge Funds

What is meant by a “Private Offering” or “Private Placement?”
May 26, 2022

Hedge funds are classified big or small based on the total amount of their AUM (Assets Under Management). A small hedge fund ranges between $10 to $100 million AUM, a mid-sized fund is between $101 to $500 million, and a large fund holds more than $500 million. The top 20 largest hedge funds in the world value more than $20000 million ($20000000000) AUM each. Smaller hedge funds traditionally outperform larger funds due to their flexibility. Larger hedge funds have excess wealth; when they invest in a market, they fundamentally change the market itself.

Investment opportunities that interest small hedge funds do not interest larger funds looking for more return on their investment. Hedge fund managers from larger hedge funds have less of an incentive to improve overall performance, manager’s fees are directly proportional to the size of the hedge fund. In contrast, larger hedge funds typically have an easier time raising capital due to popularity and brand name image.

Smaller hedge funds are at a disadvantage in long term planning, they must continue to hold on to investors with short term gains. Larger hedge funds can afford to focus on longer term outcomes. The bigger hedge funds can leverage their reputation and wealth to keep investors subscribed. Smaller hedge funds attract talented hedge fund managers with better career opportunities and training. Larger hedge funds offer better compensation.