This year's Top 50 Hedge Funds – according to new research from Global Investment Report – collectively outpaced the market over the trailing five years through 2022 by more than three full percentage points, and did so with considerably less risk than the S&P 500. Researcher Eric Uhlfelder discusses the key findings.

By Eric Uhlfelder
Founder, Global Investment Report 

It didn’t take 20 years of surveying the hedge fund industry to realize the majority of hedge funds are not reliable sources of absolute returns. In fact, very few funds can make that claim, and that limited number often doesn’t include some of the most celebrated managers.

But there are a handful of hedge fund managers that make money year in and year out.  And this is perennially borne out by the findings of my annual review of the most consistently performing hedge funds.  

This study – The Global Investment Report Annual Hedge Fund Survey, now in its twentieth year – ranks the top-performing survey of broad-strategy managers that are managing at least $300m and have been around for a minimum of five years.

But what truly distinguishes the latest survey are the minimum performance hurdles that funds must straddle over the past five year to be considered for inclusion.  

Key results:

• Last year’s Top 50 funds (based on trailing five-year returns through 2021) proved their value by having outperformed the S&P 500 in 2022 by nearly 24 percentage points.  
• More than two thirds of the funds from that select list qualified for this year’s group, affirming their consistent performance.
• Forty-four of this year’s funds made money in 2022.
• This year’s Top 50 collectively outpaced the market over the trailing five years through 2022 by more than three full percentage points. They did so with considerably less risk than the S&P 500 and a market correlation of just 0.18.  
• The group’s average age: 14 years.  And their average annualized return since inception – 12.4% – was virtually the same as what they had delivered over the past five years, generated with less volatility and drawdown than the market. 
• Nearly half the Top 50 are global macro, hedged equity, and multi-strategy funds.

This year’s survey includes commentary and outlook from leading global allocators and advisors, including Investcorp-Tages, Iteram Capital, Fiducient Advisors, and Sussex Partners.  

There’s an in-depth Q&A with Thomas Hempell, the head of macro and market research at Generali Investments, which manages more than €500bn in assets around the globe.  In a nutshell, he does not believe in the current rally and thinks markets in the US and Europe will end the year flat.

I also spoke with the former US ambassador to Russia Michael McFaul. He shared his thoughts on what it would mean to lose Ukraine and explains why that can’t happen. 

Finally, in-depth interviews of four exceptional fund managers – spread across equities, credits, convertible arbitrage, and diversified commodities – provide insight into how to navigate markets during times of stability and extreme volatility and how they deliver the kind of numbers that define the most consistently performing hedge funds around.   

For more on the latest survey, as well as the results of Global Investment Report’s previous Hedge Fund Surveys, visit www.globalinvestmentreport.net.

Some key takeaways from my research into top-performing hedge funds: 

• Look beyond the short-term. This is especially important today given the growing disconnect between hard macro concerns and investors who are looking past such worries, likely at their own peril.
• Successful investing is not about responding to momentum but in finding proven, well-established managers who deliver steady absolute returns during good times and then excel when markets turn south – regardless of strategy. That’s how the most successful allocators achieve market-like performance with substantially less risk.
• Outsize returns are a killer. Avoid funds that are generating numbers that are too good to be true. Sooner rather than later, that will be borne out.
• The survey identifies reasons driving consistent profitability...what to look for and what to avoid.

Eric Uhlfelder has covered global capital markets from New York over the past 30 years for various major publications, including for The Financial Times, The Wall Street Journal, Institutional Investor, Pensions & Investments, The New York Times, The International Herald Tribune, and BusinessWeek. He wrote the first book on the advent of the euro post currency unification, “Investing in The New Europe,” for Bloomberg Press. And he has earned a National Press Club Award. His website is www.globalinvestmentreport.net