What's in a name? For a hedge fund, it could be a lot.
A new research paper suggests that even sophisticated investors are taken in by hedge funds with strong, powerful names. Think of funds with phrases like "prodigy Asia" and "alpha fund" in their names.
Researchers from the University of Buffalo and the University of Oulu in Finland used a metric to measure what they called "gravitas" of hedge fund names collected from a variety of databases. On average, adding a single word with gravitas to a fund's name increases flows to that fund by $227,120 a year, the researchers found.
The words that seemed to have an effect were those associated with weight, influence, seriousness and authority.
"Hedge fund investors chase hedge fund names containing a special combination of words related to economics and geopolitics, or that convey power," the researchers wrote.
That effect exists when controlling for the fund's performance, suggesting that it's not that investors are seeking high-performing funds that happen to have solid, powerful-sounding names.
Here are some examples of funds with gravitas in their names:
- Marathon Macro Strategic Allocation
- Manchester Alpha Fund
- Lionhart Aurora Venture Segregated Class A
And here are some without gravitas, according to the research:
- Hare Investment Fund
- Mullaney Investment
- LGT (CH) Cat Bond Fund USD A
Hedge fund assets hit an all-time high over $3 trillion at the end of last year, Hedge Fund Research said in January.