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Onshore and Offshore Hedge Funds: Are They Twins?

Author

Listed:
  • George Aragon

    (W.P. Carey School of Business, Arizona State University, Tempe, Arizona 85287)

  • Bing Liang

    (Isenberg School of Management, University of Massachusetts, Amherst, Massachusetts 01003)

  • Hyuna Park

    (College of Business, Minnesota State University, Mankato, Mankato, Minnesota 56001)

Abstract

Contrary to offshore hedge funds, U.S.-domiciled (“onshore”) funds are subject to strict marketing prohibitions, accredited investor requirements, a limited number of investors, and taxable accounts. We exploit these differences to test predictions about organizational design, investment strategy, capital flows, and fund performance. We find that onshore funds are associated with greater share restrictions, more liquid assets, and a reduced sensitivity of capital flows to superior past performance. We also find some evidence that onshore funds outperform offshore funds, depending on the sample period. The results suggest that a fund's investment and financial policies reflect differences in investor clienteles and the regulatory environment. This paper was accepted by Wei Xiong, finance.

Suggested Citation

  • George Aragon & Bing Liang & Hyuna Park, 2014. "Onshore and Offshore Hedge Funds: Are They Twins?," Management Science, INFORMS, vol. 60(1), pages 74-91, January.
    • Handle: RePEc:inm:ormnsc:v:60:y:2014:i:1:p:74-91
    DOI: 10.1287/mnsc.2013.1729
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    References listed on IDEAS

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    9. Cumming, Douglas & Dai, Na & Johan, Sofia, 2015. "Are hedge funds registered in Delaware different?," Journal of Corporate Finance, Elsevier, vol. 35(C), pages 232-246.
    10. Aragon, George O. & Martin, J. Spencer & Shi, Zhen, 2019. "Who benefits in a crisis? Evidence from hedge fund stock and option holdings," Journal of Financial Economics, Elsevier, vol. 131(2), pages 345-361.
    11. Guillermo Baquero & Marno Verbeek, 2015. "Hedge fund flows and performance streaks: How investors weigh information," ESMT Research Working Papers ESMT-15-01, ESMT European School of Management and Technology.
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