Without much incentive to communicate their strategies and internal developments, it is difficult to obtain complete information on hedge fund performance. However, a detailed analysis by alternative investment services firm Canoe Intelligence, backed by Goldman Sachs in its latest funding round, points to the differences that arise within the hedge fund space.
The dilemma, according to the entity in a report, is that performance benchmarks for the segment do not provide the full picture, as they tend not to include the vehicles that actually dominate institutional allocations. As a result, the firm decided to analyze hedge fund performance using aggregated data drawn directly from account statements, investor letters, and fund reports from more than 500 institutional investors and over 18,000 limited partners.
From this exercise, some trends emerge when looking at the most relevant hedge funds, which Canoe classifies as “VIP.” Within this segment, the firm observed trends related to different strategies and how size appears to work for or against various structures.
Specifically, multi-manager hedge funds seem to benefit from greater size, while relative value and arbitrage vehicles are a more fertile ground for smaller firms.
Pod Shops: The Advantage of Scale
Breaking down the different categories, the report highlights that there is one type of hedge fund that proves more effective at capital preservation: multi-manager hedge funds.
These platforms, known as “pod shops”—as they consist of different teams, each with their own investment philosophies, actively managing their allocated portions of the portfolio—have demonstrated the ability to navigate market volatility with limited drawdowns and rapid recoveries.
The most relevant multi-manager hedge funds within institutional portfolios, the VIPs, the report notes, “showed the smallest drawdowns of any segment analyzed, including VIP quantitative and arbitrage strategies.”
For example, during the market turmoil of October 2023, VIP pod shops recorded virtually no losses, according to the firm’s estimates, while the broader VIP hedge fund segment experienced a 3% contraction. This occurred while the adjusted S&P 500 fell by 5% over the same period. Similarly, in April 2025, multi-manager vehicles posted declines of 0.5%, compared to 2.7% for VIP hedge funds and 4.5% for the U.S. equity market.
What explains this behavior? According to Canoe, as highlighted in its report, size works in favor of these hedge funds. “Large multi-manager platforms have built risk mitigation strategies to absorb market dislocations—across sectors and strategies—without a material impact on the portfolio,” they noted.
Since each portion of the multi-manager vehicle—each “pod”—has a different risk/return profile and relationship with the broader market, gains and losses across the platform can offset one another.
Relative Value and Arbitrage: The Reward for Agility
While there are many contexts in which size benefits investment funds, in the case of hedge funds, relative value and arbitrage strategies were identified as areas where it is better not to grow too large.
In this segment of the market, agility is what is rewarded, according to Canoe’s data. On an absolute basis, looking at the past three years, relative value hedge funds overall have delivered an 8% annual return with 2.6% annualized volatility, while the VIP segment—comprising larger hedge funds—within relative value and arbitrage strategies posted a 6% return with 1.4% volatility.
This means that smaller vehicles achieved better performance, accepting greater turbulence in the process.
In this case, larger size is no longer a comparative advantage, as it is with pod shops. “Relative value and arbitrage strategies are fundamentally about speed and agility,” Canoe explains, as they focus on exploiting pricing inefficiencies that may disappear within hours or days.
“At scale, the ability to execute quickly enough to capture those opportunities becomes structurally more difficult,” they explained in the report. For example, larger positions may impact the market, or decision-making agility may be reduced due to more complex approval chains.
The Hedge Fund Benchmark Dilemma
The financial services firm’s study aims to capture dynamics that traditional hedge fund benchmarks fail to reflect, given how they are constructed.
Most, they noted, are based on information voluntarily provided by managers. As a result, there is a bias toward firms that are actively raising capital, while larger and more successful firms, those with little marketing incentive to report and many reasons to keep their performance private, are underrepresented.
“The result is an index shaped more by who participates than by where institutional capital actually resides. This is a contribution bias and has skewed published benchmarks toward smaller managers that are in capital-raising mode,” they stated in the report.
This leaves out large segments of the hedge fund industry from standard metrics, such as multi-manager platforms, quantitative investing giants, and “global macro legends”—investment firms managing hundreds of billions of dollars in assets.
