Hedge Funds Performance: Behind The Headline Numbers by Preqin
The 2016 Preqin Alternative Assets Performance Monitor examines the performance of the hedge fund industry over the past 12 months
Clint Carlson's hedge fund, Carlson Capital's Double Black Diamond strategy, gained 1.04% net of fees in the month of September. Following this performance, the fund has returned 9.87% net of fees for the year to the end of the month. Q3 2021 hedge fund letters, conferences and more The Double Black Diamond strategy makes up Read More
Preqin’s recent surveys of hedge fund managers and institutional investors finds that both groups feel performance is one of the key drivers of change in the industry at present; following returns of 1.97% in 2015, hedge funds posted overall gains of 1.09% through H1 2016, considerably below the double-digit figures seen in 2009-2013. However, beyond the modest gains of the Preqin All-Strategies Hedge Fund benchmark there are some strategies and geographies which have recorded substantial returns. Macro strategies are the highest performing top-level strategy in the past 12 months (+3.14%), followed by CTAs (+2.49%) – every CTA sub-strategy tracked by Preqin has made gains over the past year, with counter-trend CTAs (+7.11%) seeing the highest returns of any sub-strategy.
Within different hedge fund strategies, there can be a broad variance in the performance of different vehicles, as seen in the interquartile ranges of returns for each top-level strategy. While equity strategies funds have the lowest overall 12-month performance (-4.31%), they also have the largest interquartile range, between 3.32% and -12.16%. Credit strategies funds, while not having the highest 12-month returns, do have the smallest interquartile range, between 4.13% and -2.75%. With over 15,000 active hedge funds currently open to investment, it highlights the difficulties faced by investors in identifying better-performing funds.
Hedge Funds – Other Key 2016 Alternative Assets Performance Monitor Findings:
- Geographic Focus: Emerging markets and Latin America are the only geographies to record positive performance in the 12 months to June 2016, with funds focused on these regions returning 1.46% and 11.03% respectively. Conversely, funds focused on Asian emerging markets recorded losses of 8.26%, the lowest of any geography.
- Downside Protection: The average monthly Value at Risk (VaR), representing the proportion of capital an investor might lose each month, remains lower for hedge fund investors than for those in public markets. Equity strategies have an average monthly VaR of 6.16% over the last 10 years, while among credit strategies it stands at just 2.37%. In contrast, the S&P 500 has an average monthly VaR of 8.20%.
- Largest Fund Managers: Despite some recent performance concerns, Bridgewater Associates remains the largest hedge fund manager globally, with $147bn in assets under management. There are currently 668 firms worldwide which manage $1bn or more in assets.
- League Tables: As well as ranking those hedge funds which have offered the greatest returns over the past 12 months, Preqin has also compiled league tables of those funds in each top-level strategy which have consistently offered their investors superior returns and lower volatility over the past three and five years.
“With recent returns lower than investors have come to expect, the performance of the hedge fund industry is under increasing scrutiny. Both fund managers and investors have identified performance as a key issue in the hedge fund industry today and one which is driving change in the sector.
Although overall investor sentiment for the asset class is at a historically low ebb, there remain sectors of the industry which offer investors good returns on their investment. However, the proliferation of funds in recent years, as well as the wide dispersion between the best performing strategies and between individual managers in the industry today, mean that investors are finding it more difficult to pinpoint the good investment opportunities in the current environment.”
Amy Bensted – Head of Hedge Fund Products, Preqin