Hedge funds” performance can wax and wane, and fees have slid from the 2 per cent management fee/20 per cent incentive fee more than a decade ago. However, their ability to deliver returns across different market conditions means they continue to figure in the wealth management mix.
Hedge fund capital rose to a record of $4.3 trillion milestone in
the first quarter of 2024, buoyed by performance gains and
investor inflows, according to industry figures from
Chicago-headquartered Hedge Fund
Research.
The total AuM figure rose $190 billion from the end of 2023.
A breakdown of the data shows that cryptocurrency-related
strategies blew the lights out in the quarter, rising by 47.9 per
cent in Q1, bringing the trailing six-month return to 106.9 per
cent. The price of bitcoin has surged by 140 per cent – in dollar
terms – in the 12 months to 23 April.
Figures show how, despite periods when hedge funds have lagged
long-only portfolios of stocks, their ability to earn returns in
different market environments remains a reason why wealth
managers keep them in their toolkits. (Hedge funds’ fees and
performance have been criticised, as in the case of this
attack by renowned investor
Warren Buffett.)
To put overall results in context, in the first quarter of
2024 the S&P 500 Index of US equities, by comparison,
rose around 10 per cent from the end of December 2023. Hedge
funds typically charge more than conventional long-only funds.
According to HFR in September last year, fees declined. The
average incentive fee was 16.01 per cent at end-September; the
average management fee was 1.22 per cent.
Capital growth
Capital growth was boosted in part because investors raised
exposure to directional equity hedge, event-driven and
uncorrelated macro strategies, HFR said.
The HFRI Fund Weighted Composite Index® rose by 4.5 per cent in
the quarter.
Larger funds produced higher relative performance, with the HFRI
Asset Weighted Composite gaining 5.12 per cent for the
quarter.
Strategies
Capital managed by equity hedge strategies rose by nearly $70
billion to begin 2024, rising to a record level of $1.25
trillion, driven by performance-based gains, as well as estimated
net asset inflows of $8.5 billion, the organisation said. (Hedged
equity involves buying equity in some form, as an underlying
investment, and then securing a hedge to potentially offset
losses connected to market risk.)
Event-driven strategies, which focus on out-of-favour, often
heavily shorted, deep value equity and credit positions, drew in
assets of nearly $49 billion in Q1, raising total ED capital to a
record $1.21 trillion. The HFRI Event-Driven (Total) Index gained
2.5 per cent in Q1.
Uncorrelated macro strategies posted its second-strongest
quarterly performance since 2003, with the HFRI Macro (Total)
Index rising 6.2 per cent in the quarter. (The manager will take
a view on significant economic or political events and use
derivatives on equities, bonds, currencies and commodities to try
to profit from that view.)