Hedge Funds Post Worst Returns Since 2011

Jan 15 2015 | 11:12am ET

Hedge funds “disappointed” in 2014, delivering their worst annual performance since 2011, reports data provider Preqin.

The average fund gained 3.78% last year, the lowest annual return since 2011's 1.85% loss.

In the silver-lining department, Preqin noted that all core hedge fund strategies delivered gains “to satisfy absolute return investors” while strategies like CTAs and value-oriented equities posted strong gains “highlighting the need to manage a diversified portfolio of hedge funds to achieve the long-term low volatility of returns that hedge funds aim to provide.”

That may explain why the majority of investors polled by Preqin (57%) felt hedge funds at least met expectations in 2014—and 8% felt they had exceeded expectations.

Said Preqin's Amy Bensted:

“After a solid year of returns in 2013, the performance of hedge funds in 2014 was widely seen as underwhelming. The returns of some funds, including those employing asset-backed and mortgage-backed strategies, were more impressive, and others, such as commodities and emerging markets-focused funds, provided a hedge against poor performance in related public markets.

“Although the high-profile exits of CalPERS and PFZW fro the asset class pulled the insustry under the spotlight, the vast majority of institutional investors worldwide remain committed ot hedge funds. Preqin's latest poll of investors found that many thought hedge funds met or exceeded expectations throughout 2014, and although perofmance sticks out as a key issue going into 2014, both investors and fund managers remain upbeat. While fund managers will be scrutizined over the coming year, the key features of hedge funds, such as diversification, low volatility and protection against significant market downturns, are expected to hold true and to continue to attract investors.”

CTAs generated the biggest gains—9.96%—of all strategies tracked by Preqin in 2014. Credit funds came a distant second, returning 5.59% on the year; followed by relative-value funds, up 4.56% on the year; multi-strategy funds, up 4.30% on the year; equity strategies, up 3.86% on the year; macro strategies, up 1.99%; and event-driven strategies, up 1.54%.

Funds of funds ended the year with a gain of 3.48%, although one category—funds of CTAs—returned a whopping 17.28% in 2014.

UCITS funds underwhelmed in 2014, returning 1.45%, but mutual alternative mutual funds did better, gaining 4.36%.

Regionally, North American funds returned 5.75% on average, compared to 5.46% for Asia-Pacific funds and 2.91% for European funds.

Preqin also provided five-year results for the strategies it covers and the winners, over that period, were credit strategies, which generated annualized returns of 10.88%.

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