White Papers

Hedge Funds Do Deliver Outperformance, Diversification In The Long Run - New Study

Harriet Davies Editor Family Wealth Report 25 April 2012


The Alternative Investment Management Association has refuted claims of underperformance and poor value by hedge funds, commissioning a study jointly with KPMG that shows the industry has delivered market-beating returns over a 17-year period.

Hedge funds achieved an average return of 9.07 per cent in the period 1994–2011 after fees compared to 7.18 per cent for stocks, 6.25 per cent for bonds and 7.27 per cent for commodities, according to the report by Imperial College’s Centre for Hedge Fund Research, called The value of the hedge fund industry to investors, markets, and the broader economy.

Hedge funds have come under fire in recent months for delivering lacklustre returns in 2011 and making a patchy start to 2012. Hedge funds fell 5.26 per cent last year, according to Chicago-headquartered Hedge Fund Research, underperforming the S&P 500 for example.

The Morningstar MSCI Composite Hedge Fund Index crept up 0.1 per cent in March to end the first quarter of 2012 up by 3.3 per cent, according to data released by Morningstar yesterday. Meanwhile, the S&P 500 finished the quarter up 12.6 per cent and the Morningstar MSCI North America Hedge Fund Index rose 5.5 per cent.

Manager versus investor gains

Using HFR data, KPMG says hedge fund investors keep around 72 per cent of the profits on their capital while managers retain a 28 per cent share. This is taken into account in the report’s net return estimate of 9.07 per cent over the period. Inactive funds were also included, as the major hedge fund trackers began collecting data on inactive funds in 1994.

In the 1994-2011 period, hedge funds made aggregated annual losses in three years, which were 2002, 2008 and 2011, with 2008 being the most dramatic loss by far at -20.48 per cent.

Register for WealthBriefing today

Gain access to regular and exclusive research on the global wealth management sector along with the opportunity to attend industry events such as exclusive invites to Breakfast Briefings and Summits in the major wealth management centres and industry leading awards programmes