Hedge Fund Returns Relatively Modest But Consistent in 2006

Matthew Smith

16 January 2007

The hedge fund industry produced modest average returns in 2006 compared to mainstream investment indices, but with more consistency, according to Ben Rossman, general manager of alternatives database and indexation group, Greenwich Alternative Investments. Greenwich Alternative Investments' global hedge fund index ended 2006 up 12.07 per cent, according to a report released by the group. Based on a universe of 1,007 hedge funds, the Greenwich index is comparable to other hedge fund indices, including the HFR Fund Weighted Composite Index based on 1,800 funds that returned 12.85 per cent for the year to December 2006; and the Barclay Hedge Fund Index that returned 12.34 per cent based on 1,648 funds for the same period. Mr Rossman compared the hedge fund performance to the S&P 500 index that returned 15.79 per cent for the year to December 2006. However, he said the hedge fund industry has outperformed equities over the last five years with about one-third of the volatility. “During this period the Greenwich Global Hedge Fund Index had annualised returns of 9.23 per cent with volatility of 4.6 per cent versus the S&P's annualised performance of 6.18 per cent with volatility of 12.4 per cent," said Mr Rossman. The Greenwich index measured an average return for the month of December last year of 1.49 per cent. HFR measured the hedge fund industry’s return during the month at 1.43 and Barclays measured 1.56 per cent for the same period.