This paper provides the first systematic analysis of performance patterns for emerging funds and managers in the hedge fund industry. Emerging funds and managers have particularly strong financial incentives to create investment performance and, because of their size, may be more nimble than...

A discontinuity, or kink, at zero in the hedge fund net return distribution has been interpreted as evidence of managers manipulating returns to avoid showing small losses. Instead, we propose alternative explanations for this phenomenon. In particular, we show that incentive fees can...