Hedge funds have outperformed stocks and bonds on risk-adjusted basis

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 organisations found that hedge funds have out-performed equities and bonds on a risk-adjusted basis over one, three, five and 10-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 $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 crystallise those gains. Net inflows are excluded from this data.

About 32% of all hedge funds produced double-digit returns in 2017, up from about 23% in 2016, the organisations 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, CEO, AIMA, said: “We already knew that 2017 was a good year for hedge funds, with 11% 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 10 years. This of course helps to explain why the industry has consistently expanded and attracted new investor capital since the global financial crisis.”

Amy Bensted, head of hedge fund products, Preqin, said: “Hedge funds have become an important part of institutional portfolios since the GFC a decade ago, and today are helping thousands of pension funds, endowments, sovereign wealth funds and other institutions meet their investment objectives. As our results show, hedge funds have proved their value within these investor portfolios over both the short and longer term by providing superior risk-adjusted returns to both bonds and equities on a one, three, five and 10-year time frame.”

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