The last several years have seen lackluster performances from hedge funds—in 2021, they only returned about 10.3% while the S&P 500 returned almost 27%. And given their high fees, it’s no wonder they had fallen out of favor. But given the shift in market conditions this year, hedge funds may be on a rebound, reports an article in Yahoo! Finance.
Citadel is looking at its most profitable year in its history, with its flagship Wellington fund gaining 32% this year through November; nearly $7 billion is expected to be returned to the fund’s investors this year. Business was so good at Citadel that the firm’s CEO, Ken Griffin, gifted his 10,000 employees and their families a 3-day trip to Disney World, out of pocket. Meanwhile, the D.E. Shaw Group and Millennium Management gamed 23% and 10%, respectively, and global macro fund Haidar Jupiter soared to 267%. Hedge Fund Research’s weighted composite index, which tracks the biggest hedge funds around the world, reports that hedge funds are down -2.62%, compared to the -14.39% for the S&P 500, according to the article.
Hedge funds rely on “elevated dispersion”—a broad array of outcomes for a specific investment—and that kind of dispersion was limited after the 2008 financial crisis when central banks around the world loosened monetary policy. But in this year’s climate, with global centra banks tightening across the board, “equity performance dispersion will increase, which should allow greater room for these active strategies to find opportunities and inefficiencies in the market,” Joseph Burns of iCapital told Yahoo!
Another noteworthy performance comes from Pershing Square; after dropping 25% in the first half of 2022, it’s now down only 4.8% for the year-to-date after a 8% surge last month. Much of that resurgence can be credited to founder Bill Ackman’s wagers on interest rate hikes, which paid off mightily and helped to offset some of those earlier losses. Another winner this year was the Teacher Retirement System of Texas, which allocated into hedge funds while other retirees were still relying on the standard stock and bond allocations, which took a huge hit from a volatile market. But not everyone was a winner. Tiger Global Management is thought to be down about 54% this year, and once-prominent Melvin Capital closed down as this year’s losses compounded onto last year’s losing bets in the meme stock frenzy. Still, 2022 could prove to be a turning point for the hedge fund world. If it’s no longer true that “stocks always go up”—at least for the next several years—hedge funds could prove to be very popular again as a way to “hedge” against a sustained downturn.