A recent report from UK-based research group Aurum highlights that the hedge fund industry achieved its best returns in 2023 since the aftermath of the 2008 global financial crisis. According to the study, the 3,340-plus hedge funds tracked by Aurum posted aggregate returns of 11.3% on an asset-weighted basis, outpacing the mean return of 10.3%. This suggests that larger hedge funds outperformed their smaller counterparts.
The study reveals that multi-strategy hedge funds were the standout performers, delivering an impressive 13.6% return on an asset-weighted basis. Equity long/short strategies also showed robust performance, returning 13.5%. In contrast, the overall hedge fund composite was pulled down by the underperformance of long-biased, quantitative, event-driven, credit, macro, and arbitrage strategies.
Notably, six of the ten best-performing sub-strategies of 2023 also made it to the top rankings in 2024, demonstrating consistent strength. However, the study also pointed to a familiar pattern at the bottom of the performance table, with two of the worst-performing sub-strategies of 2023—tail-risk and volatility arbitrage, quantitative managed futures, and long commodities—remaining underperformers in the following year. Remarkably, only one sub-strategy, tail-risk arbitrage, posted negative returns, with a decline of 2.9%.
Despite the strong returns, investor enthusiasm for hedge funds has been lukewarm, as most strategies, with the exception of arbitrage, experienced net outflows in 2024. The Aurum report indicates that the hedge fund industry saw net outflows due to redemptions, although total assets in the sector rose moderately, primarily driven by gains from equity long/short and multi-strategy funds, with some contributions from other strategies.
As of December 2024, hedge fund assets totaled approximately US$3.1 trillion, maintaining a flat trend over the past four years, with the sector fluctuating between just under US$3 trillion and nearly US$3.5 trillion. Over the last five years, hedge funds have delivered an annualized return of 6.8%, significantly outperforming bonds, which posted a -2% return.
While hedge funds’ five-year performance lags behind equities, which returned 7.7%, the sector surpasses the stock market on a risk-adjusted basis, according to Aurum’s analysis.
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