An index tracking hedge fund performance posted returns of
7.40% in 2016, marking the best result for the industry in
three years and tripling gains made in 2015.
Despite a volatile start to the year which caused poor
performance, Preqin says hedge funds rebounded to post positive
returns in nine of the final 10 months of the year.
Overall, all leading strategies saw returns across 2016
according to the US data firm's All-Strategies Hedge Fund
Amy Bensted, head of hedge fund products at Preqin, said
hedge funds were able to cast off performance struggles that
hampered them in 2015.
"Fear over China’s economy in Q1, the Brexit
vote at the end of Q2 and the US presidential election in Q4
drove the narrative in 2016.
"Although there were some high profile losses, the
associated volatility created opportunities for hedge funds to
produce significant returns for investors."
Looking ahead to 2017, Bensted reckons the continued
consequences of these geo-political events are likely to remain
key determinants of industry performance.
Despite the marked improvement in performance, she added
that hedge fund managers will be aware that in recent years
returns have "still fallen short of other alternative asset
classes and public market indices".
This is especially pertinent in the wake of some
high-profile investors eliminating or reducing hedge fund
investments from their portfolio, such as giant state pension
plans in New Jersey and Rhode Island.
Specifically, Preqin data shows event driven strategies saw
double-digit gains in 2016, returning 12.47% for the year.
This marked a sharp contrast from the previous year, when
the funds were the only leading strategy to suffer losses
According to Preqin’s size classifications,
smaller hedge funds were able to generate the greatest returns
North America-focused hedge funds returned 10.20% in 2016
after making gains of 0.45% in 2015
Funds focused on Europe (+2.89%) and the Asia-Pacific region
(+1.68%) struggled through the year, but gains in Latin America
saw emerging markets funds return 9.96%.
Funds of funds lose ground
Funds of hedge funds, investment companies that put
money into hedge funds rather than investing in
individual securities, recorded five months of losses in 2016,
and only returned more than 1.00% in July.
As such, annual returns for funds of hedge funds fell to
-0.25% in 2016, their lowest performance year since 2011, when
they saw losses of 3.98%.