April gains fortify a strong six months for multi-strategy, while fixed income net inflows and performance gains mark strong month
Q1 2021 hedge fund letters, conferences and more
HFM Insight’s latest strategy reports covers the latest performance vs benchmarks, AUM, investor flows and key trend analysis. This month’s release features the multi-strategy and fixed income hedge fund strategies.
Highlights:
- The HFM Multi-strategy Composite Index was up 7.5% YTD at the end of April
- Investor flows for multi-strategy were negative in April (-$0.5bn) but remained positive YTD ($0.8bn)
- The HFM Fixed Income Composite Index was up 3.5% YTD at the end of April
- Investor flows for fixed income were positive in April ($4.8bn) but remained negative YTD (-$0.7bn)
A summary is included below and the compiled report is available for download. If you require more information on this report, have data queries or interview requests, please do not hesitate to contact me. As a reminder, with Pageant Media’s acquisition of Eurekahedge, you now have insights from both HFM and Eurekahedge when it comes to information and data requests – feel free to check in about data from either brand.
Multi-Strategy
April gains fortify a strong six months for multi-strategy: The average multi-strategy hedge fund gained 1.3% in April as multi-discipline managers continued to build a strong six months following a challenging start to the pandemic period. HFM’s Multi-strategy Composite Index currently leads the global composite YTD (7.5% to 7.4%) and on a three-year annualised basis (8.6% to 8.2%) but trails over 12 months (24.6% to 25.9%). Despite robust recent performance, investors have favoured other strategies of late, with HFM data showing that multi-strategy managers saw outflows in April when the wider industry added more than $25bn. Multi-strategy also saw $20.6bn of net outflows in 2020, suggesting that some investors have remained sceptical over its merits.
However, HFM research from the end of 2020 found that all investors planned to increase their allocations to multi-strategy in H1 2021, with all investor types planning notable net positive. However, if aggregated data suggests investors are lukewarm to the strategy, generally, it is because some have had their interests drawn to larger funds: several brand-name multi-strategy firms have been aggressively adding headcount in recent months following periods of strong performance and inflows, according to HFM intel.
(Source: HFM Insights)
Fixed Income
Net inflows and performance gains mark strong month: HFM’s Fixed Income Composite Index gained 0.9% in April and 3.5% YTD, while net investor flows for the month were nearly $5bn, as credit hedge fund managers built on steady recent progress. Inflation continued to be the dominant theme in fixed income markets during April, but the benchmark 10- year US Treasury yield steadied, having already risen sharply in Q1. Credit hedge fund managers attracted fresh capital from investors during April and are close to reversing the outflows they experienced during Q1.
Away from debates over short-term performance, investors have shown a growing interest in green bond funds. Figures from the Climate Bond Initiative think thank suggest 2021 may mark yet another record in green bond issuance. With fixed income hedge fund managers’ strong returns in Q1 translating into positive flows in March and April, their response to investor interest in green and ESG-compliant funds will likely prove key to maintaining a positive trajectory longer term.
(Source: HFM Insights)
| Benchmark | Apr-21* | Mar-21 | Feb-21 | 2021 YTD* | 2020 | 2019 | 12-month* | 3 yr ann.* |
| HFM Multi-strategy Composite Index | 1.3 | 0.9 | 2.1 | 7.5 | 11.9 | 9.3 | 24.6 | 8.6 |
| HFM Fixed Income Composite Index | 0.9 | 0.6 | 0.8 | 3.5 | 5.6 | 6.8 | 18.5 | 5.4 |
| HFM Global Composite Index | 2.2 | 0.9 | 2.9 | 7.4 | 11.5 | 9.5 | 25.9 | 8.2 |
| S&P 500 | 5.2 | 4.2 | 2.6 | 11.3 | 16.3 | 28.9 | 43.6 | 16.4 |
*Analyst note: HFM performance indices represent the mean average return of funds on the HFM platform. Indices are based on reported data at time of publication and are subject to future revision.
Download full report with charts
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FAQs
Multi-strategy hedge funds are investment vehicles that employ a variety of strategies to generate returns, reducing risk by diversifying their approaches. Unlike traditional hedge funds that may focus on a single strategy, multi-strategy funds combine tactics such as long or short equity, arbitrage and global macro.
What is alpha for a hedge fund? ›
Alpha (α) is a term used in investing to describe an investment strategy's ability to beat the market, or its “edge.” Alpha is thus also often referred to as excess return or the abnormal rate of return in relation to a benchmark, when adjusted for risk.
What is the 2 20 rule for hedge funds? ›
The 2 and 20 is a hedge fund compensation structure consisting of a management fee and a performance fee. 2% represents a management fee which is applied to the total assets under management. A 20% performance fee is charged on the profits that the hedge fund generates, beyond a specified minimum threshold.
Which hedge fund strategy has the highest return? ›
In the recent period, long/short equities hedge funds were the most consistent among strategic mandates in delivering strong returns to their investors as they recorded their fourth double-digit performance in 2021 over the last five years.
How do hedge fund managers get so rich? ›
Hedge fund managers typically earn above-average compensation, often from a two-and-twenty fee structure. Hedge fund managers typically specialize in a particular investment strategy that they then use to power their fund portfolio's mandate for profits.
Which hedging strategy is best? ›
The following options hedging strategies are generally used by traders in varying scenarios to meet different trading objectives.
- Protective put. In a protective put strategy, you purchase put options for an underlying asset that you already possess. ...
- Covered call. ...
- Collar. ...
- Straddle and strangle. ...
- Butterfly spread.
It can be done by adding emerging market debt into the more stable portion of their portfolios and emerging market equity into the higher risk portions of their portfolio. Other market sectors can add alpha substantially through more concentrated investment.
What is a good alpha score for a fund? ›
Anything more than zero is a good alpha; higher the alpha ratio in mutual fund schemes on a consistent basis, higher is the potential of long term returns. Generally, beta of around 1 or less is recommended.
What is a good alpha value? ›
The alpha value, or the threshold for statistical significance, is arbitrary – which value you use depends on your field of study. In most cases, researchers use an alpha of 0.05, which means that there is a less than 5% chance that the data being tested could have occurred under the null hypothesis.
How much money do you need to be considered a hedge fund? ›
3 In exchange, the Securities and Exchange Commission (SEC) requires a majority of hedge fund investors to be accredited, which means possessing a net worth of more than $1 million and a sophisticated understanding of personal finance, investing, and trading.
Based on recent data, the average annual return on investment for investors in a typical hedge fund is around 7.2%, with a Sharpe ratio of 0.86 and market correlation of 0.9. However, it's important to note that performance can vary significantly among different hedge funds.
Should I put my money in a hedge fund? ›
Hedge funds offer the potential for high returns and diversification benefits, but they also come at the cost of higher fees and less regulatory oversight. As with any investment, you should do your own research to determine whether they make sense for your portfolio.
What is the most profitable hedge fund ever? ›
Citadel has now made $74 billion for investors since its inception in 1990, more than any other hedge fund firm.
What is the wealthiest hedge fund? ›
Largest hedge fund firms
| Rank | Firm | AUM as of June 2023 (millions of USD) |
|---|
| 1 | Bridgewater Associates | $97,200 |
| 2 | Man Group | $69,900 |
| 3 | Millennium Management, LLC | $57,346 |
| 4 | The Children's Investment Fund Management | $56,000 |
16 more rowsIn addition, some unique risks common to most hedge funds must be evaluated such as the possibility of fraud, regulatory action, or market illiquidity.
What does a strategist do in a hedge fund? ›
In general, strategists typically have responsibility for evaluating macro factors, such as economic fundamentals, and contributing their insights to the investment decision-making process.
How do hedging strategies work? ›
Hedging is an advanced risk management strategy that involves buying or selling an investment to potentially help reduce the risk of loss of an existing position.
What is the difference between a single manager and multi-manager hedge fund? ›
While single-manager funds offer a more concentrated investment approach, multi-manager funds provide diversification benefits and scalability, making them an attractive option for investors seeking exposure to a broader range of investment strategies.
What is a multi asset strategy? ›
Multi-asset strategies offer the flexibility investors need to achieve a number of investment outcomes, such as growth, income, or minimizing risk. These types of strategies also offer more diversification compared to investing in a single asset class.
