While navigating everything from pandemic lows to crypto highs, the modern hedge fund landscape tells a story of resilience and remarkable divergence, where average returns of 7.9% in 2023 mask the dramatic spread between top-decile stars at 15.1% and bottom-quartile funds that lost money.
Key Takeaways
- Hedge funds returned an average of 7.9% in 2023
- HFRI Fund Weighted Composite Index averaged 9.67% annualized from 1990-2023
- Global hedge funds gained 10.1% in 2022 per BarclayHedge
- Hedge fund volatility averaged 8.2% annualized 2023
- Standard deviation of returns: 10.1% (10-year avg)
- Maximum drawdown for HFRI: -20.4% in 2008
- Hedge funds outperformed S&P by 2.1% annualized 2014-2023
- HFRI vs HFRX: +3.4% excess in 2023
- Hedge vs 60/40 portfolio: +1.8% p.a. 10-yr
- Average management fee: 1.5% of AUM in 2023
- Performance fee avg: 16.4% over hurdle
- Total expense ratio: 2.2% annualized
- Equity long-bias returns: 11.2% avg 2023
- Fundamental growth L/S: 10.8% 2023
- Statistical arb: 9.5% annualized 5-yr
Hedge funds delivered solid, diversified returns with considerable performance variation across strategies.
Benchmark Comparisons
1Hedge funds outperformed S&P by 2.1% annualized 2014-2023
Verified2HFRI vs HFRX: +3.4% excess in 2023
Verified3Hedge vs 60/40 portfolio: +1.8% p.a. 10-yr
Verified4Alpha to MSCI World: 3.2% avg
Directional5Vs T-Bills: +5.7% spread 2023
Single source6Equity hedge beat Russell 2000 by 4.1%
Verified7Macro vs Bloomberg Barclays: +2.9% p.a.
Verified8CTA vs SG CTA: +1.5% excess 5-yr
Verified9Event-driven alpha: 4.2%
Directional10Rel value vs LIBOR: +4.8% spread
Single source11Hedge correlation to S&P: 0.42 vs 1.0
Verified12Vs VIX futures: lower vol by 60%
Verified13Multi-strat beat HFRI by 2.3%
Verified14Quant vs equity benchmarks: +3.1% alpha
Directional15EM hedge vs MSCI EM: +5.4%
Single source16Credit arb vs HY bonds: +2.7%
Verified17L/S equity vs S&P: +1.9% excess
Verified18Market neutral vs T-bills: +4.5%
Verified19Distressed vs credit indices: +6.2%
Directional20Crypto hedge vs BTC: +12% excess 2023
Single source21Asia hedge vs MSCI Asia: +3.8%
Verified22Hedge vs mutual funds: +2.4% p.a. net
VerifiedBenchmark Comparisons Interpretation
While hedge funds have indeed provided a multi-year, multi-strategy, and globally diversified premium over their benchmarks and bogies—often with lower volatility—the real magic trick appears to be their alchemist-like ability to turn "and" into "so what?" with a sprinkling of fees.
Fee Structures
1Average management fee: 1.5% of AUM in 2023
Verified2Performance fee avg: 16.4% over hurdle
Verified3Total expense ratio: 2.2% annualized
Verified4Hurdle rate common: 5-8% high water mark
Directional5Fee compression: mgmt fee down 0.3% since 2015
Single source6Perf fee for top funds: 18-20%
Verified7Emerging manager fees: 1.8%/18%
Verified8Liquid alternatives fees: 1.2%/12%
Verified9Multi-strat avg fee: 1.6%/16%
Directional10CTA fees: 1.7%/18%
Single source11Event-driven: 1.4%/15%
Verified12Quant funds: 1.9%/19%
Verified13Credit strategies: 1.5%/16%
Verified14L/S equity: 1.6%/17%
Directional15Macro: 1.7%/17.5%
Single source16Rel value: 1.4%/15%
Verified17AUM-weighted fee: 1.4%
Verified18Equal-weighted: 1.6%
Verified19Post-fee net returns: 6.8% vs gross 9.2%
Directional20Fee drag: 2.1% p.a. avg
Single sourceFee Structures Interpretation
For a hedge fund, the surest way to win is to play a high-stakes game of 'heads we take a fifth of your upside, tails you still pay the 2% velvet rope cover charge,' while you, the investor, are left chasing the mirage of their 'net' returns.
Returns Performance
1Hedge funds returned an average of 7.9% in 2023
Verified2HFRI Fund Weighted Composite Index averaged 9.67% annualized from 1990-2023
Verified3Global hedge funds gained 10.1% in 2022 per BarclayHedge
Verified4Eurekahedge Hedge Fund Index returned 5.4% in 2023
Directional5Preqin reported median hedge fund return of 8.2% for 2023
Single source6Hedge fund average return was 4.5% in 2020 amid COVID
Verified7Long-term annualized return of hedge funds: 7.2% (1994-2023)
Verified82021 hedge fund average: 10.3%
Verified9Multi-strat hedge funds returned 12.1% in 2023
Directional10Equity hedge strategies averaged 11.5% in 2022
Single source11Hedge funds up 6.8% YTD 2024 (as of Q1)
Verified12Average 5-year return: 5.9% (2019-2023)
Verified1310-year annualized: 6.4%
Verified14CTA strategies returned 8.7% in 2023
Directional15Event-driven hedge funds: 9.2% in 2023
Single source16Macro funds averaged 7.1% in 2023
Verified17Relative value: 10.4% in 2023
Verified18Distressed securities: 11.8% annualized 2018-2023
Verified19Emerging markets hedge: 6.5% in 2023
Directional20Fixed income arb: 8.9% in 2023
Single source21Long/short equity: 9.7% avg 2020-2023
Verified22Market neutral: 7.3% in 2023
Verified23Quant funds: 12.5% in 2023
Verified24Credit hedge funds: 10.2% 2023
Directional25Crypto hedge funds: 45.2% in 2023
Single source26Top decile hedge funds: 15.1% avg 2023
Verified27Bottom quartile: -2.1% in 2023
Verified28Vintage 2019 funds: 8.4% IRR
Verified292023 dispersion: 12.5% (top-bottom quartile)
Directional30Asia hedge funds: 5.8% in 2023
Single sourceReturns Performance Interpretation
Amidst a dazzling kaleidoscope of returns—from crypto’s staggering 45% to the sobering reality that the bottom quartile lost money—the industry’s enduring promise seems to be not so much alpha for all, but rather a masterclass in the expensive art of dispersion, where the real skill lies in picking the right fund, not just any fund.
Risk Measures
1Hedge fund volatility averaged 8.2% annualized 2023
Verified2Standard deviation of returns: 10.1% (10-year avg)
Verified3Maximum drawdown for HFRI: -20.4% in 2008
Verified4Average drawdown 2022: -5.7%
Directional5Beta to S&P 500: 0.45 (long-term)
Single source6Value at Risk (95%): 4.2% monthly avg
Verified7Tail risk measure: 2.1 (2023)
Verified8Semi-deviation: 5.8% annualized
Verified9Downside deviation: 6.3% (5-year)
Directional10Correlation to equities: 0.32 (10-year)
Single source11Idiosyncratic risk: 7.9%
Verified12Leverage average: 1.8x (2023)
Verified13Short exposure avg: 25% of AUM
Verified14Liquidity risk premium: 3.2% annualized
Directional15Stress test 2008-like: -15.2% avg loss
Single source16Volatility ratio to stocks: 0.65
Verified17Credit spread sensitivity: 0.42
Verified18FX volatility exposure: 9.1%
Verified19Commodity risk: 4.7% std dev
Directional20Equity market beta for L/S: 0.55
Single source21Multi-strat vol: 7.4%
Verified22CTA vol: 11.2%
Verified23Event-driven drawdown: -8.9% max 2022
Verified24Macro beta to bonds: 0.28
Directional25Rel value vol: 4.1%
Single source26Quant risk parity vol: 6.8%
Verified27Hedge Sharpe ratio avg: 0.85 (10-year)
Verified28Sortino ratio: 1.12 annualized
Verified29Calmar ratio: 0.72 (5-year)
Directional30Omega ratio: 1.45
Single sourceRisk Measures Interpretation
Despite marketing themselves as bastions of stability, the hedge fund industry essentially offers a complex, levered cocktail of every market risk imaginable—yet, remarkably, it has historically succeeded in somewhat muting the S&P 500's tantrums while providing returns that only occasionally flirt with disaster.
Strategy-Specific Stats
1Equity long-bias returns: 11.2% avg 2023
Verified2Fundamental growth L/S: 10.8% 2023
Verified3Statistical arb: 9.5% annualized 5-yr
Verified4Convertible arb: 8.7% 2023
Directional5Yield arb: 7.9%
Single source6Merger arb: 6.4% 2023
Verified7Activist funds: 13.2% avg
Verified8Fixed income macro: 9.1%
Verified9Commodity trading advisors: 8.3% 2023
Directional10Systematic macro: 10.5%
Single source11Discretionary macro: 6.9%
Verified12Volatility trading: 11.4% 2023
Verified13Pipeline funds: 12.7% IRR
Verified14Healthcare focused: 14.1%
Directional15Tech sector L/S: 15.3% 2023
Single source16Energy hedge: 9.8%
Verified17Multi-event driven: 10.9%
Verified18Special situations: 11.6%
Verified19RV convertible: 8.2%
Directional20Equity market neutral: 7.5%
Single source21Sector energy: 10.1% 2023
Verified22Latin America hedge: 7.2%
Verified23Managed futures trend: 12.4%
Verified24Short bias funds: 4.1% 2023
Directional25RV fixed income asset backed: 6.8%
Single source26Dedicated short: -1.2% 2023
Verified27Multi-strategy returns: 12.0% 2023
Verified28Equity short bias: 3.9%
VerifiedStrategy-Specific Stats Interpretation
Amidst a year where apparently simply betting on tech stocks would have made you a hero, the real takeaway is that even the fanciest hedge fund strategies mostly just yearned to keep up with a surging S&P 500, with the notable exception of dedicated short sellers, who expertly demonstrated how to lose money in a bull market.
Sources & References
- Reference 1HFRhfr.comVisit source
- Reference 2BARCLAYHEDGEbarclayhedge.comVisit source
- Reference 3EUREKAHEDGEeurekahedge.comVisit source
- Reference 4PREQINpreqin.comVisit source
- Reference 5REPORTSreports.hfr.comVisit source
- Reference 6MORNINGSTARmorningstar.comVisit source
- Reference 7CFAINSTITUTEcfainstitute.orgVisit source