The 'capacity effect' conundrum

academic paper

For several months, investors and their advisors have been worrying about the profitability prospects for hedge funds.

Hedge fund alpha would appear to be vanishing for two reasons. First, the increase in operational volumes is reducing market inefficiency and anomalies, which are allegedly the main source of performance for hedge funds.

Second, the windfall represented by the remuneration model and the very strong growth in assets under management would be attracting more and more managers, l

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