Hedge funds continued to perform well at the close of 2021, according to data from Preqin, with the firm’s 2022 Global Hedge Fund Report revealing that returns across the asset class were up 11.43 per cent (as of September 2021, +15.52 per cent annualised) and all top and sub strategies finished the year with positive results.
Hedge funds continued to perform well at the close of 2021, according to data from Preqin, with the firm’s 2022 Global Hedge Fund Report revealing that returns across the asset class were up 11.43 per cent (as of September 2021, +15.52 per cent annualised) and all top and sub strategies finished the year with positive results.
Event-driven funds topped the leaderboard, recording returns of +17.53 per cent, ahead of equities at +14.85 per cent.
Hedge funds assets under management (AUM) passed the USD4 trillion mark at the end of Q1 2021 and grew substantially to USD4.32 trillion as of September 2021. Strong inflows and a spirited performance drove an +8.1 per cent increase in AUM in 2021 relative to the end of 2020 (USD3.99 trillion).
2021 was another extraordinary year for hedge funds. The Covid-19 pandemic turned the spotlight back on to an asset class that thrives on volatility and aims to protect investors under market stress. During 2020, hedge funds delivered on this promise, mitigating losses as stock markets plunged, and rebounding fast as markets recovered. In 2021, high levels of volatility and dispersion, compounded by the divergence in recovery between countries, created market conditions in which hedge funds could shine. Returns will likely normalise in 2022, but the industry is nevertheless well positioned to continue its strong momentum.
Investors rewarded the industry with an additional +USD41 billion in 2021 (as of September), with positive inflows recorded in every quarter. This was in addition to the USD18.8 billion that investors committed to hedge funds in the second half of 2021. Every top-level strategy, except for credit (-USD6.7 billion) and multi-strategy (-USD0.6 billion), experienced positive inflows in 2021. Overall, investors are pleased with their hedge funds allocations, according to Preqin’s November 2021 survey: about half (48 per cent) believe that returns will be about the same in 2022 as in 2021, and almost a quarter (23 per cent) think the performance will be better.
North America remained the most prominent investor base for hedge funds in 2021. Investors in the region accounted for 68 per cent of the market and boasted the highest median allocation as a percentage of total AUM (9.1 per cent). North America (+13.67 per cent as of September, +18.62 per cent annualised) continued its positive momentum in 2021, outperforming Europe (+8.65 per cent as at September, +11.69 per cent annualised), and Asia-Pacific (+9.16 per cent as at September, +12.39 per cent annualised). North America’s strong performance resulted in positive cashflows of USD49 billion, while Europe’s lagging returns in 2020 and 2021 resulted in outflows of USD20 billion. Investors in Asia-Pacific ramped up their allocations last year by +USD13 billion, boosting AUM in the region by +11.9 per cent.
Event driven took first place among traditional top-level strategies with a +12.88 per cent return as of September (+17.53 per cent annualised), and equities were the runners up with +10.94 per cent (+14.85 per cent annualised). Meanwhile, relative value came last with +5.30 per cent (+7.12 per cent annualised), but still managed to return positive numbers in all nine months to September. Every top-level strategy except for credit (-USD6.7 billion) and multi-strategy (-USD0.6 billion) experienced positive inflows in 2021, indicating that investors were happy with their hedge fund allocations overall.
For credit strategies, the events of 2020, plus a lack of competitive performance in 2021, resulted in significant outflows of USD16.8 billion in 2020 and USD6.7 billion as of September 2021.
This is not to discredit the accomplishments of credit managers, who recorded positive returns every month for the first three quarters of last year. Although interventions from central banks have made it difficult for credit managers to shine, the strategy will get the opportunity to stage a comeback in 2022, as fiscal support fades away.
Sam Monfared, Associate Vice President, Research Insights, at Preqin, says: “Hedge funds have performed well under market stress as they can benefit from dislocations, of which there are still plenty left. 2022 will be a year of transition, as central banks gradually step away from the markets. However, hedge funds are well positioned to continue their strong momentum throughout 2022.”
