Preqin has published its Q1 2022 Hedge Fund Quarterly Report which shows hedge funds were affected by geopolitical factors and turmoil in the markets, posting lower returns during the quarter compared to their strong performance in 2021.
Preqin has published its Q1 2022 Hedge Fund Quarterly Report which shows hedge funds were affected by geopolitical factors and turmoil in the markets, posting lower returns during the quarter compared to their strong performance in 2021.
High inflation numbers, along with changes in monetary policies, geopolitical tensions – in particular on the back of the military conflict in Ukraine – and soaring energy prices, all resulted in elevated levels of volatility and significant turmoil in the global markets.
On the back of this, Q1 2022 ended up being one of the most challenging quarters for hedge funds with the strong 2021 momentum coming to an end. The asset class declined 1.47% during the quarter, making this year’s decline the worst post Global Financial Crisis (GFC) and the third lowest first quarter return ever recorded by Preqin.
​​​​​In the historical context, Q1 performance was certainly disappointing but hedge funds managed to guard investors against major pullbacks. Preqin data shows that despite the pressure, macro and multi-strategy hedge funds were the best performing top level strategies, returning +5.74% and +1.15% respectively in Q1 2022. Of the two, the star of the show was certainly macro strategies, which generated positive returns in every month of Q1 2022; while relative value (-0.45%) and event driven (-0.98%) shielded allocators from volatility in Q1. Conversely, despite the recovery in equity markets, equity strategies ended up being the worst performing category within hedge funds with a decline of -4.42%.
Commodity Trading Advisors (CTAs) showed good returns with +6.79% over the quarter. CTAs perform best when market volatility is accompanied by an extended period of market stress meaning the current environment created an ideal market condition for the category. CTAs are generally purely price based in their analysis and follow their models regardless of fundamentals, and this paid off during Q1.
Preqin’s performance figures show that when the correct strategies are picked, hedge funds can bring substantial value to portfolios. The industry experienced positive inflows in 2021 (+36bn), but the confusion in the market could impact how investors rotate their capital.
According to Preqin Pro, 74% of investors are intending to invest less than $50 million (the smallest allocation size) of fresh capital in hedge funds over the next 12 months, compared to 84% of investors in Q1 2021. Of larger sizes, only 3% are aiming to put over $300 million to work over the next 12 months.
