New industry data reveals “significant” gulf between gains and losses among largest hedge funds

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Hedge fund managers have experienced “significant” performance dispersion over the past 12 months, with the biggest funds seeing the largest gaps between gains and losses, new industry data shows, once again underlining the importance of investor due diligence in separating winners from losers.

Hedge funds globally ended a tumultuous 2020 on a high, generating an average monthly gain in December of some 4 per cent, to bring full-year returns to more than 11 per cent, according to newly-published year-end performance data from eVestment.

The 10 biggest hedge funds tracked by eVestment generated returns of just 3.72 per cent between January and December last year – almost three times below 2020’s hedge fund industry average.

But, of that grouping of the 10 largest funds, just one was close to that average, said Peter Laurelli, global head of research at eVestment, with most scoring strong double-digit gains.

“Despite the high average returns across the industry, 2020 was a year where the dispersion of returns between fund types and within those various segments was significant. This was very apparent among large funds,” Laurelli noted in a commentary on Wednesday.

“There were more large funds with double-digit gains and double-digit losses than not in 2020, highlighting the importance of fund due diligence and monitoring when selecting any hedge fund.

“[The 3.72 per cent] does not at all represent the returns generally produced by the group.”

Similarly, the firm’s research shows that although long/short equity managers generated an average 14.95 per cent gain in 2020, the 10 biggest long/short equity funds actually registered an 8.46 per cent loss for the year.

Earlier this month, some media reports suggested large hedge fund firms are starting to turn away new investor capital amid concerns that ballooning AUMs could hinder performance.

More broadly, eVestment’s year-end number show hedge funds’ 11.02 per cent annual performance in 2020 was above the 10.07 per cent average gain posted in 2019. Overall, it was the industry’s highest average annual performance since 2009, when the hedge funds seized on the unfolding Global Financial Crisis with a 19.44 per cent rise.

Elsewhere, Event Driven – Activist hedge funds enjoyed a late December surge, bringing in 6.23 per cent of gains on average to drive full-year performance for 2020 to 17.82. Convertible arbitrage strategies rose more than 14 per cent over the 12-month period, with multi-strategy hedge funds also up 10.18 per cent in 2020.