The Mortality of Funds of Hedge Funds

Abstract

This article examines the survival analysis of funds of hedge funds using different survival models. Survival analysis has been used in studies of the lifetimes of bonds, labor strikes, marketing preferences, and many other areas. By exploring several predictor variables, the analysis demonstrates that some variables can be used to predict mortality and, thus, in this illustration the mortality of funds of funds. The author uses the product-limit estimator, life table method, accelerated failure time model, and the Cox proportional hazards models to investigate the survival times of both alive and dead funds of funds over a 12-year period. He finds that the median (half-life) survival time of all funds of funds is exactly 7.50 years. Further, he suggests that millions managed, redemption period, performance fee, leverage, monthly returns, and minimum purchase all impact these mortality expectations.