Global hedge funds recorded higher returns in recent months as they benefitted from the strong recovery of risk assets, particularly equities. Global hedge funds gained 9.27%, 13.20%, and 9.37% annually from 2019 to 2021 respectively, marking their best three year performance since 2007. The onset of the COVID-19 outbreak resulted in a global economic shutdown as governments were forced to temporarily cease the operations nonessential businesses in a bid to stem the spread of the virus. Governments and central banks injected massive amounts of economic stimulus to support their economies from the crisis, with the US government pumping around US$6 trillion since March 2020 and the Federal Reserve cutting its policy rate down to zero and restarting its quantitative easing program to support the US economy. The synchronized moves of economic policymakers across the globe acted as a tailwind to the performance of global equities. The S&P 500 recorded an accumulated return of 84.40% since end-March 2020, while the tech-heavy NASDAQ Composite was up by 103.17% over the same period. Going into 2021, as most countries gradually reopened their economies, global demand increased in tandem resulting in a surge in commodity prices particularly in the energy sector, with US Crude prices rising beyond pre-pandemic levels - the highest since October 2014. The refusal of OPEC+ to increase production as demanded by the US government to stabilize global oil prices has also contributed to the rapid increase in its price to the said level.
Across main investment strategies, event-driven followed by distressed debt hedge funds lead the pack in terms of 2021 performance, with their 13.56% and 13.14% returns respectively. In the same vein, supported by the higher commodity prices, commodity hedge funds recorded the best return in 2021 among their secondary strategy peers, with a 15.08% return. In addition, hedge funds utilising top-down strategies outshined their long-only absolute return peers by recording a 23.79% return over the same period.
Table 1 below shows the risk-return statistics of global hedge funds breakdown into per strategic mandate. 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. Despite having the second-highest three-year annualised volatilities among their peers, long/short equities have the third-best risk-adjusted returns as reflected in their Sharpe ratio of 1.33. In the same vein, arbitrage hedge funds posted the best risk-adjusted returns among their peers as seen in their 2.53 Sharpe ratio, thanks to their low volatility strategy. It is also worth noting that six out of nine strategies have generated a Sharpe ratio of at least 1, which shows good performance as it indicates that they delivered excess returns relative to their volatility.
Table 1: Performance in numbers of global hedge funds breakdown into their main strategic mandate
Indices Name | 2021 Return | 2020 Return | 3Y Annualised Return | 3Y Annualised Volatilities | 3Y Sharpe Ratio (RFR = 1%) |
Arbitrage | 4.98% | 12.01% | 7.50% | 2.57% | 2.53 |
CTA/Managed Futures | 6.66% | 7.37% | 6.62% | 4.62% | 1.22 |
Distressed Debt | 13.14% | 6.79% | 7.98% | 7.90% | 0.88 |
Event Driven | 13.56% | 9.29% | 10.06% | 10.41$ | 0.87 |
Fixed Income | 4.29% | 5.31% | 5.78% | 6.42% | 0.74 |
Long/Short Equities | 10.80% | 17.93% | 13.55% | 9.42% | 1.33 |
Macro | 3.97% | 11.45% | 8.09% | 4.83% | 1.47 |
Multi-Strategy | 7.58% | 8.70% | 8.41% | 6.26% | 1.18 |
Relative Value | 6.81% | 9.40% | 7.15% | 5.92% | 1.04 |
Global Hedge Fund | 9.49% | 12.91% | 10.55% | 6.69% | 1.43 |
Source: Eurekahedge
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