Callan Institute examines how survivorship bias distorts hedge fund performance, focusing on how excluding failed funds reshapes peer group outcomes and investor perception. The paper argues that post-GFC datasets may systematically overstate returns, leading to flawed decisions, and suggests that many “underperforming” managers may simply be victims of cycle timing rather than true laggards.
Survivorship Bias and The Walking Dead
Callan Institute
Jim McKee
Research
11 Pages
Key Takeaways
Bias Inflates Returns: Excluding defunct funds can overstate peer group performance over 10-year periods, creating artificially strong benchmarks and misleading allocation decisions.
Turnover Skews Rankings: Over a 45-year dataset, higher-turnover strategies show greater distortion, pushing average performers into bottom-quartile rankings among surviving funds.
Decision-Making Impact: Survivorship-adjusted analysis reveals materially different return distributions, highlighting that investor outcomes often diverge from reported peer medians by several percentage points.
Join our newsletter to have all of this content + Exclusive Newsletter Bonus Content delivered to your inbox every week
