New analysis reveals hedge funds outperformed traditional investment instruments in 2016
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Much news coverage has focused on how hedge funds struggled for returns last year, but a new study indicates that the industry has actually done better than expected.
Hedge funds outdid equities and bonds on a risk-adjusted basis in 2016, getting their investors around $120 billion in net gains, according to the Alternative Investment Management Association (AIMA) and data provider Preqin.
Using the Sharpe ratio to measure the performance of more than 3,000 funds, they found that hedge funds achieved a risk-adjusted return of 1.45 for the year. This was better than the S&P 500’s record of 1.1, MSCI World’s 0.68, and the Barclays Global Aggregate’s 0.20.
“We already know from the various indices such as Preqin that have reported their flash numbers this month that 2016 was one of the better years for hedge funds since the financial crisis,” said AIMA CEO Jack Inglis. “Even though the headline numbers may not have met all investors’ expectations, our analysis highlights the importance of explaining various strategies and timeframes for yielding returns to clients. Significantly, on average hedge funds outperform on the key metric of risk-adjusted returns over one year, three years and five years.”
From an absolute perspective, the Preqin All-Strategies Hedge Fund index showed that hedge funds returned 7.4% last year. AIMA and Preqin also estimated that the net gain in the value of hedge fund assets – investment profits minus all fees, assuming investors withdraw investments to capture gains – in 2016 reached $120 billion. Closed funds returned an average of 6.42% yearly, while open funds yielded 6.75% annually on average.
“As markets responded to the unexpected events of 2016 hedge funds were able to show their worth and generate their best returns for three years,” said Preqin Head of Hedge Fund Products Amy Bensted. “Investors, however, are looking for hedge funds to produce more than high returns; as this study shows, hedge funds have delivered solid risk-adjusted returns over the short and longer terms, a facet of hedge funds that is highly prized among the institutional investors that Preqin works with.”
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Hedge funds outdid equities and bonds on a risk-adjusted basis in 2016, getting their investors around $120 billion in net gains, according to the Alternative Investment Management Association (AIMA) and data provider Preqin.
Using the Sharpe ratio to measure the performance of more than 3,000 funds, they found that hedge funds achieved a risk-adjusted return of 1.45 for the year. This was better than the S&P 500’s record of 1.1, MSCI World’s 0.68, and the Barclays Global Aggregate’s 0.20.
“We already know from the various indices such as Preqin that have reported their flash numbers this month that 2016 was one of the better years for hedge funds since the financial crisis,” said AIMA CEO Jack Inglis. “Even though the headline numbers may not have met all investors’ expectations, our analysis highlights the importance of explaining various strategies and timeframes for yielding returns to clients. Significantly, on average hedge funds outperform on the key metric of risk-adjusted returns over one year, three years and five years.”
From an absolute perspective, the Preqin All-Strategies Hedge Fund index showed that hedge funds returned 7.4% last year. AIMA and Preqin also estimated that the net gain in the value of hedge fund assets – investment profits minus all fees, assuming investors withdraw investments to capture gains – in 2016 reached $120 billion. Closed funds returned an average of 6.42% yearly, while open funds yielded 6.75% annually on average.
“As markets responded to the unexpected events of 2016 hedge funds were able to show their worth and generate their best returns for three years,” said Preqin Head of Hedge Fund Products Amy Bensted. “Investors, however, are looking for hedge funds to produce more than high returns; as this study shows, hedge funds have delivered solid risk-adjusted returns over the short and longer terms, a facet of hedge funds that is highly prized among the institutional investors that Preqin works with.”
Related stories:
Hedge funds seen to lose business to alternative products
Are retail investors ready for alternative investments?
