Abstract
In this article, the authors examine three hedge fund governance characteristics—restrictions on investor liquidity, the presence of a high-water mark, and the level of fees charged to investors—that previously have been shown to be associated with superior hedge fund performance. Investor liquidity and high-water mark provisions, which were found to predict performance in earlier time periods, no longer do so. High fund fees are associated with better fund performance—but only because better managers are able to charge higher fees, not because higher fees make managers perform better. The authors conclude that simple, readily observable characteristics do not reveal superior performance.
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