Hedge fund strategies have lagged stock markets and traditional equity/bond portfolios in recent years, driving down management and performance fees – but firms led by women and minorities are pulling ahead of their industry peers when it comes to returns, new data published by Bloomberg shows.
Hedge fund strategies have lagged stock markets and traditional equity/bond portfolios in recent years, driving down management and performance fees – but firms led by women and minorities are pulling ahead of their industry peers when it comes to returns, new data published by Bloomberg shows.
Over the last five years, hedge funds have trailed stock markets as well as more traditional portfolios comprising a standard equities and bonds mix. According to the Bloomberg All Hedge Fund Index, hedge funds gained 34.43 per cent between September 2016 and September 2021, while the S&P 500 scored a 98.66 per cent return, and traditional portfolios up 62.14 per cent, over the same period.
The latest Bloomberg Hedge Fund Chartbook for Q3 shows Asia Pacific (Emerging)-based hedge funds leading the pack in terms of performance, posting a 35.37 per cent median one-year total return, and a three-year annualised total return of 12.46 per cent.
By comparison, North America-based managers have made a one-year total return of 17.59 per cent, and a three-year annualised total return of 7.23 per cent in the same period.
Elsewhere, hedge fund performances in Europe shows a clear east-west split, with Eastern Europe-based managers up 18.01 per cent over the 12-month period compared to Western Europe-based managers’ 9.62 per cent gain. Longer-term, Eastern Europe managers have generated a 7.12 per cent three-year annualised total return, compared Western Europe-based managers’ 4.97 per cent gain over the same period.
As diversity and representation has emerged as a major area of focus within the hedge fund industry, Bloomberg’s research shows that firms headed by women and minorities are outperforming their market peers.
Hedge funds with women as the majority represented in management have generated a median one-year return of 21.63 per cent, while funds with minorities leading the management board are up 29.59 per cent over the same period. In contrast, hedge fund managers without those attributes have returned 12.70 per cent. On a three-year annualised return basis, women-led hedge funds are out in front with a 10.62 per cent return, followed by minority-managed/led funds, which have gained 7.75 per cent, while those with a non-diverse management are up 6.37 per cent.
Meanwhile, pension funds and foundations continue to dominate hedge funds’ public investor pool, collectively comprising more than half of the industry’s publicly-reported client base at 27 per cent and 26 per cent, respectively. Corporations make up almost a quarter, at 24 per cent, with endowments accounting for 6 per cent of hedge fund investor capital, and government allocations making up 3 per cent.
With equity-focused managers accounting for roughly a third of total industry assets, the strategy remains the most popular among allocators, making up 26 per cent of hedge fund commitments. Credit hedge and event driven account for 20 per cent of commitments each, followed by macro (17 per cent), multi-strategy (11 per cent), relative value (4 per cent) and insurance (2 per cent), analysis from Bloomberg’s Hedge Fund Investor Database shows.
As industry performance lags the broader equities market, hedge fund fees have continued on a downward trend. The traditional ‘two and twenty’ fee structure is less common, with the median management rate across all strategy types now standing at 1.25 per cent, and the median performance fee at 15 per cent.
