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Hedge funds: The industry strikes back

September 28, 2022

In this paper, we explore trends in the hedge fund industry such as innovation, momentum in sustainable investing best-practices, better value for money and improving returns and alpha.

The hedge fund industry continues to grab headlines, but all too frequently in a negative light.

Unfortunately, a majority of this negativity is warranted - there are inevitably performance blow-ups, but also fraud, the flaunting of enormous wealth, to name a few topics. What is less frequently captured in headlines is the strong performance of hedge funds (the HFRI Fund Weighted Composite returned more than 10% each year in 2019, 2020 and 2021 – three very different market environments) and a pleasing evolution in segments of the industry in terms of transparency, delivering better value and help to address emerging important issues for asset owners.

We wrote a paper in 2019 (“Hedge funds: A new way”) lauding the benefits of hedge funds, if invested in the correct way. While we were taking a contrarian view at the time (perhaps at the peak of hedge fund unpopularity), we are pleased to see that the portfolios of hedge funds we have constructed in “a new way” have consistently added value. Not only have they generated stronger absolute returns than we’ve seen in the past decade or two, but they have provided significant protection when investors have really needed it. Figure 1 illustrates the hedge fund industry performance through periods of challenging equity market performance, such as the first quarter of 2020 and through the market turmoil in the first half of 2022. And while the industry performance is one of less downside rather than full capital protection, through (successful) active selection and portfolio construction there has been scope to build hedge fund portfolios delivering positive performance through these challenging periods.

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Hedge funds: The industry strikes back PDF 1.9 MB

Chris Redmond
Global Head of Manager Research

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