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Hedge Funds Shone In Q2 As Markets Gained, AuM Hits Record

Editorial Staff

23 August 2023

Hedge funds gained ground in the second quarter of 2023 and have stayed in positive territory since early January, said in a note this week. However, investors who had held a basket of developed countries’ equities in a conventional fund would have achieved more than double this performance.

Preqin, the research firm that specialises in alternative investments such as hedge funds, private equity, and real estate, said “market optimism is growing for hedge funds,” benefiting from a “robust June.” Funds achieved a 2.46 per cent return for the second quarter of 2023, and a 6.06 per cent return for the first half. This marked the third consecutive quarter of +2 per cent gains, it said. 

As a comparison, total returns from the MSCI World Index of developed countries’ equities, comprising reinvested dividends and capital growth, were 15.09 per cent in the six months to end June, based on MSCI data.

Among equity strategies for hedge funds, they achieved a 9.89 per cent 12-month return at the end of the second quarter – such funds were the top-performing funds in the quarter. Relative value and event-driven funds posted quarterly returns of 2.10 per cent and 1.76 per cent, respectively. 

A parsing of such figures explains why the pros and cons of hedge funds, a sector that has seen its fortunes wax and wane over the past three decades, can’t be easily resolved. Comparing hedge funds’ returns with long-only portfolios holding listed equities is problematic, because hedge funds typically have the freedom to short-sell and use leverage to (hopefully) smooth out market swings. They also typically charge higher fees than for conventional long-only mutual funds and exchange-traded funds. 

In the past, famed US investment guru Warren Buffett has lambasted hedge funds as not worth their fees. On the other hand, when market volatility skyrocketed at the outset of the Covid-19 pandemic in early 2020, the sector was hit along with the wider investment market. (See a story here on more recent performance.) When the markets were roiled again by Russia's invasion of Ukraine, fund strategies that make money from a spike in volatility managed to outperform rival strategies, as reported here.