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Quantifying Survivorship Bias in Hedge Fund Indices

How large is it?

Nicolas Rabener
10 min read
23 Jun 2026

SUMMARY

  • The survivorship bias of liquid alts is approximately 1% pa
  • However, this ranges dramatically across hedge fund strategies
  • It rises up to 4% for offshore hedge funds

INTRODUCTION

Equity market neutral funds are supposed to provide uncorrelated returns and diversification benefits to traditional portfolios. However, HedgeIndex’s Equity Market Neutral Index fell by 40% in November 2008 during the global financial crisis – exactly when investors needed diversification the most.

Such a decline is highly unusual for an index, as these are typically composed of multiple funds which themselves represent diversified portfolios. In this case, the index weights constituents by assets under management, and the largest equity market neutral fund at the time was Madoff’s fund, which was liquidated after his Ponzi scheme collapsed.

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