Hedge fund managers and institutional investors feel performance is one of the key drivers of change in the industry at present, according to a survey by Preqin.
Following returns of 1.97 per cent in 2015, hedge funds posted overall gains of 1.09 per cent through H1 2016, considerably below the double-digit figures seen in 2009-2013.
However, beyond the modest gains of the Preqin All-Strategies Hedge Fund benchmark there are some strategies and geographies which have recorded substantial returns.
Macro strategies are the highest performing top-level strategy in the past 12 months (+3.14 per cent), followed by CTAs (+2.49 per cent) – every CTA sub-strategy tracked by Preqin has made gains over the past year, with counter-trend CTAs (+7.11 per cent) seeing the highest returns of any sub-strategy.
Within different hedge fund strategies, there can be a broad variance in the performance of different vehicles, as seen in the interquartile ranges of returns for each top-level strategy. While equity strategies funds have the lowest overall 12-month performance (-4.31 per cent), they also have the largest interquartile range, between 3.32 per cent and -12.16 per cent. Credit strategies funds, while not having the highest 12-month returns, do have the smallest interquartile range, between 4.13 per cent and -2.75 per cent. With over 15,000 active hedge funds currently open to investment, it highlights the difficulties faced by investors in identifying better-performing funds.
Emerging markets and Latin America are the only geographies to record positive performance in the 12 months to June 2016, with funds focused on these regions returning 1.46 per cent and 11.03 per cent respectively. Conversely, funds focused on Asian emerging markets recorded losses of 8.26 per cent, the lowest of any geography.
The average monthly Value at Risk (VaR), representing the proportion of capital an investor might lose each month, remains lower for hedge fund investors than for those in public markets. Equity strategies have an average monthly VaR of 6.16 per cent over the last 10 years, while among credit strategies it stands at just 2.37 per cent. In contrast, the S&P 500 has an average monthly VaR of 8.20 per cent.
Despite some recent performance concerns, Bridgewater Associates remains the largest hedge fund manager globally, with USD147 billion in assets under management. There are currently 668 firms worldwide which manage USD1 billion or more in assets.
As well as ranking those hedge funds which have offered the greatest returns over the past 12 months, Preqin has also compiled league tables of those funds in each top-level strategy which have consistently offered their investors superior returns and lower volatility over the past three and five years.
“With recent returns lower than investors have come to expect, the performance of the hedge fund industry is under increasing scrutiny. Both fund managers and investors have identified performance as a key issue in the hedge fund industry today and one which is driving change in the sector,” says Amy Bensted, head of hedge fund products at Preqin. “Although overall investor sentiment for the asset class is at a historically low ebb, there remain sectors of the industry which offer investors good returns on their investment. However, the proliferation of funds in recent years, as well as the wide dispersion between the best performing strategies and between individual managers in the industry today, mean that investors are finding it more difficult to pinpoint the good investment opportunities in the current environment.”