Hedge Funds Cautiously Optimistic On Industry Performance

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Hedge Funds Cautiously Optimistic On Industry Performance

As per Alternative Investment Management Association‘s (AIMA) Global Hedge Fund Benchmark survey findings, hedge funds are cautiously optimistic regarding their fund’s prospects for growth over the coming 12 months with over 70% of all hedge funds citing a positive confidence measure. The indictor looks at the health of the hedge fund industry and explores various trends prevalent in the hedge fund industry. This was in field during Q4 2020 to gather real time data from across North America, APAC and Europe on trends prevalent in the hedge fund industry.

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Q4 2020 hedge fund letters, conferences and more

Hedge Funds Are Cautiously Optimistic

Key findings from the survey:

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Performance:

  • Hedge Fund performance over the past 12 months has either met or exceeded targets set by investors.
  • However, performance dispersion which has been a prominent feature over the past 12 months is likely to continue, highlighting the importance of manager selection and ongoing review.
  • During the peak COVID-19 market volatility in the first half of 2020, hedge funds on average halved the losses incurred by equity markets and were able to balance their portfolios.

Hedge Funds Optimistic

Response To Investor Needs:

  • Hedge funds are responding to investor needs with arrangements that are more closely aligned both to the requirements of the investor and its underlying investment strategy/securities.
  • Management fees charged by more established hedge reached a tipping point with just 14% revising their fees down over last 12 months and one in four over the past three years.
  • Performance fees across the industry continue to hold up reasonably well with investors prepared to incentivise hedge funds that deliver for them. Across all the hedge funds that participated in the survey, the average incentive fee paid to hedge funds was 17.5% of annual net profits.

The Investor View:

  • The strong hedge fund performance in navigating a series of market drawdowns during 2020 has not gone unnoticed by investors.
  • With the industry continuing to report strong performances, there is a growing consensus that the hedge fund industry will record its first year of net inflows since 2017.

Hedge Funds Optimistic

Looking Ahead:

  • 2021 is shaping up to be the year in which major sources of uncertainty through 2020 resolve such as increasing inflation/return to volatility, allowing confidence to return to boardrooms and investors.
  • For hedge funds, that presents an opportunity for returns to continue to grow and perhaps to aspire to the golden era following the global financial crisis in 2008.
  • Hedge fund respondents cite market volatility as their biggest external challenge in the next 12 months.
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver
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