Hedge funds’ 2019 returns were big, but not big enough

Industry’s best performance since 2009 still fell far behind broad stock-market surge

Hedge funds’ 2019 returns were big, but not big enough

Hedge funds finished 2019 with their best performance in a decade, according to Hedge Fund Research (HFR), though it’s not likely to impress investors with an eye on the broader stock markets.

“The HFRI Fund Weighted Composite Index gained 1.8% in December, leaving it with a 2019 rise of 10.4% — the strongest since a 20% rise in 2009,” reported MarketWatch.

It was a much-needed win for the hedge-fund space, which had suffered a 5.9% decline in 2018. But whether it’s enough to offset other points of weakness is another question entirely.

Citing data from eVestment, Bloomberg reported that hedge funds shed US$82 billion last year through November, more than double the outflows for all of 2018. The most recent data from HFR also points to a fifth straight year of fund closures outnumbering launches.

Hedge funds have also been the subject of much criticism in recent years as they failed to outperform the broader stock market. That includes last year, as the S&P 500 and Nasdaq indexes produced returns of 31.5% and 35%, respectively.

“Global financial markets experienced a correlated melt up in 2019, with strong gains across equities (led by U.S. technology), fixed income, commodities, and currencies,” Kenneth J. Heinz, HFR president, said in a statement.

Last year’s financial-market environment has been favourable for many prominent hedge funds, as reported by Bloomberg:

  • Bill Ackman’s publicly traded hedge fund, which soared 58%;
  • Soroban Capital Partners, which was co-founded by Eric Mandelblatt, outdid many of its stock-picking peers with a 45% return;
  • David Einhorn’s Greenlight Capital came back from its worst-ever slump in 2018 by gaining 14% last year,
  • D.E. Shaw & Co.’s flagship hedge fund rose by approximately 10.5%.

However, Bridgewater Associates Pure Alpha II fund, run by Ray Dalio, took its first annual loss since 2000 with a 0.5% dip.

Despite strength in the U.S. core economy and employment figures, Heinz signaled “positive but tempered” expectations for 2020 given rising geopolitical risks from increasing Middle Eastern conflict, continuing trade tariff negotiations, and the uncertainty of the U.S. election.

“Funds positioned for this dynamic, global, opportunity-rich environment are likely to lead industry performance and growth in 2020,” he said.


Follow WP on FacebookLinkedIn and Twitter