Global hedge funds are set to mark their worst returns in 14 years this year after aggressive U.S. interest rate hikes hit asset prices hard, however, their losses are overall smaller than the tumble seen in bond and equity markets this year.
Some hedge fund strategies that invest in commodities and currencies using macro-focused strategies and capitalize on price differences between related securities outperformed this year, delivering decent gains to investors.
“More than at any time in recent history, both equities and bonds have been very sensitive to macro events, particularly to inflation prints,” said Meisan Lim, managing director of hedge fund research at Cambridge Associates.
According to investment data firm Preqin, hedge fund returns have slumped 6.5% in 2022, their largest since a 13% decline in 2008.
That contrasts with the ICE BofA U.S. Treasury index’s (.MERG0Q0) decline of 11.9% and the MSCI World index’s (.MIWO00000PUS) decline of 18.7%.
Strategy-wise, macro funds gained 8.2% through November this year, while event-driven strategies and equity-hedged lost 4.7% and 9.7%, respectively, according to HFR data.
“As a strategy, macro has historically been less correlated to movements in the broader stock market, helping to diversify portfolios,” said UBS in a note.
“We think a continuation of tight monetary policy and high volatility should prove favourable for macro managers in 2023.”
Activist funds, which use minority stakes to call for strategy and management changes to unlock shareholder value, fell 13.8%, the HFR data showed.
Trend-following strategies were profitable in 2022 owing to the inflationary environment, said Andrew Hendry, head of Asia at Janus Henderson Investors, a global asset manager that also manages a 900 million euro ($955.17 million) long-short Global Multi-Strategy Fund.
“Trend-following works on the idea that markets process information inefficiently and at different speeds, and markets that move in one direction to start with, are more likely to continue to move in that direction,” Hendry said.
“The trend has had a great 2022 with things like strong commodity prices and weak bonds contributing substantially to performance.”
Alongside the slump in traditional assets from bonds to equities, net assets of global hedge funds dropped 4.8% in the first nine months of this year to $4.3 trillion. They registered a combined outflow of $109.8 billion in that period, according to Preqin data.
Just 915 funds were set up in 2022, the fewest in 10 years, the data showed.
($1 = 0.9422 euros)