Hedge funds out-performed equities and bonds on a
risk-adjusted basis in 2016, alternative investment trade body
AIMA says, producing around $120bn in net gains for their
An AIMA study, in partnership with data firm Preqin, shows
hedge funds’ risk-adjusted return, as measured by
the Sharpe ratio, was 1.45 for the year, ahead of the S&P
500 (1.1), MSCI World (0.68) and Barclays Global Aggregate
The analysis, based on a database of more than 3,000 funds,
found that hedge funds outperformed stocks and bonds on a
risk-adjusted basis over three years and five years.
Institutional investors, such as pension funds, value
risk-adjusted outperformance highly since it reflects
volatility as well as net returns.
On an absolute basis, hedge funds returned 7.4% last year,
according to the Preqin All-Strategies Hedge Fund index.
At the same time, AIMA and Preqin estimate that the net gain
in the value of hedge fund assets in 2016 was $120bn.
That would be the value of investment profits net of all
fees, were investors to withdraw their investments and
crystallise those gains.
"We already know from the various indices such as Preqin
that have reported their flash numbers this month that 2016 was
one of the better years for hedge funds since the financial
crisis," said AIMA chief executive Jack Inglis.
"Even though the headline numbers may not have met all
investors’ expectations, our analysis highlights
the importance of explaining various strategies and timeframes
for yielding returns to clients.
"Significantly, on average hedge funds outperform on the key
metric of risk-adjusted returns over one year, three years and
Amy Bensted, head of hedge fund products at Preqin, added:
"2016 could be characterised as a year of a series of
unpredicted events. As markets responded to the unexpected
events of 2016 hedge funds were able to show their worth and
generate their best returns for three years.
"Investors, however, are looking for hedge funds to produce
more than high returns; as this study shows hedge funds have
delivered solid risk-adjusted returns over the short and longer
terms, a facet of hedge funds that is highly prized among the
institutional investors that Preqin works with."