Hedge funds outperform
February 14, 2018

Hedge funds have produced more consistent and steadier returns than equities or bonds over both the short term and the long term, according to new research by Preqin, the data provider, and the Alternative Investment Management Association (AIMA), the global representative of alternative investment managers.   

The organizations say they found that hedge funds have out-performed equities and bonds on a risk-adjusted basis over one, three, five and ten-year periods.           

Risk-adjusted returns, represented by the Sharpe ratio, reflect the volatility of the returns as well as the returns themselves. The higher the ratio, the better the risk-adjusted returns.   

The analysis is based on the returns of more than 2,300 individual hedge funds that report to Preqin's All-Strategies Hedge Fund Index, an equal-weighted benchmark.

Preqin and AIMA also found that the value of hedge fund performance gains in 2017 was around US$250 billion. That represents the value of investment profits net of all fees, were investors in hedge funds such as pension funds, sovereign wealth funds and endowments to withdraw their investments and crystallize those gains. Net inflows are excluded from this data.

About 32 percent of all hedge funds produced double-digit returns in 2017, up from about 23 percent in 2016, the organizations also found.

In addition, funds that are no longer seeking external capital were found to have produced marginally better returns in 2017 than those that remain open to new investments. Over longer periods, the difference in performance and volatility is negligible.

Jack Inglis, Chief Executive Officer, AIMA, said: "We already knew that 2017 was a good year for hedge funds, with 11 percent returns for the average fund and gains in every month of the year. But this new research makes an important contribution to the debate about hedge fund performance over the long term since it shows that hedge funds have produced consistent and competitive returns for the last ten years. This of course helps to explain why the industry has consistently expanded and attracted new investor capital since the global financial crisis."                           





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Hedge funds have produced more consistent and steadier returns than equities or bonds over both the short term and the long term, according to new research by Preqin, the data provider, and the Alternative Investment Management Association (AIMA), the global representative of alternative investment managers.   

The organizations say they found that hedge funds have out-performed equities and bonds on a risk-adjusted basis over one, three, five and ten-year periods.           

Risk-adjusted returns, represented by the Sharpe ratio, reflect the volatility of the returns as well as the returns themselves. The higher the ratio, the better the risk-adjusted returns.   

The analysis is based on the returns of more than 2,300 individual hedge funds that report to Preqin's All-Strategies Hedge Fund Index, an equal-weighted benchmark.

Preqin and AIMA also found that the value of hedge fund performance gains in 2017 was around US$250 billion. That represents the value of investment profits net of all fees, were investors in hedge funds such as pension funds, sovereign wealth funds and endowments to withdraw their investments and crystallize those gains. Net inflows are excluded from this data.

About 32 percent of all hedge funds produced double-digit returns in 2017, up from about 23 percent in 2016, the organizations also found.

In addition, funds that are no longer seeking external capital were found to have produced marginally better returns in 2017 than those that remain open to new investments. Over longer periods, the difference in performance and volatility is negligible.

Jack Inglis, Chief Executive Officer, AIMA, said: "We already knew that 2017 was a good year for hedge funds, with 11 percent returns for the average fund and gains in every month of the year. But this new research makes an important contribution to the debate about hedge fund performance over the long term since it shows that hedge funds have produced consistent and competitive returns for the last ten years. This of course helps to explain why the industry has consistently expanded and attracted new investor capital since the global financial crisis."                           



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