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Don’t judge a hedge fund by its name—even if you really want to

Hedge funds with names like First National Advantage and the Black River Group have an imprimatur of gravitas that makes you want to trust them with your money. That’s not a good idea, though, especially because we just made those hedge funds up with the help of the Hedge Fund Name Generator.

Turns out, funds with the luster of gravitas to their names “have lower returns, alphas, Sharpe ratios, and manipulation-proof performance measures, higher volatilities and maximum drawdowns as well as higher probabilities of extinction than the funds with lower name gravitas,” according to a new report from researchers at the University at Buffalo and Finland’s University of Oulu and reported by Bloomberg. The researchers looked at nearly 18,000 hedge funds that manage around $160 million and discovered that investors really like to give their money to soberly named funds that sound extra authoritative. Even adding one more serious-sounding word can earn a fund about $227,120 more each year, even though the same funds tend to charge higher management fees and lower incentive fees. 

And, yes, before you think you’re too clever, there is already a hedge fund named Gravitas. ML