Hedge Fund Heaven

It’s been a whirlwind year for the markets—that’s for sure. Hedge funds fared well, though, closing out 2020 with their best performance of the decade.

The dish: The average fund returned around 12.3% in 2020, the largest annual return since the end of the Great Recession in 2009.

Hedging bets

Hedge funds have struggled over the past decade as investors turn to private equity and cheaper tracker funds.

They’ve also suffered a round of bad press. Bombastic leaders like Dalio and Ackman have tried to convince their investors that they have the secret sauce, but studies continue to show that hedge funds rarely beat the market.

Bull markets: During bull markets, however, hedge funds tend to perform well. Last quarter, hedge funds added $290 billion worth of assets, bringing the total amount under management to $3.6 trillion.

Uneven growth

Not everyone got to participate in this most recent feeding frenzy:

• Big players like Jim Simons’ Renaissance Technologies had some of the worst years on record. The fund’s Institutional Diversified Alpha fund lost a whopping 31% last year.
• New funds also struggled—there were just 274 new openings in 2020, compared to almost 400 in 2019.

The Takeaway:

China isn’t looking too good, either. Even though the country recently opened its doors to a host of new funds, global investors are losing out to local investors.