After a strong year of performance in 2021, hedge funds fell back to earth in the early months of the year. The performance records are not surprising given the fallout from the Russia-Ukraine war, rising inflation, and the Federal Reserve’s moves to increase interest rates. Investors did well with hedge funds in 2021, particularly in credit, quantitative funds, and multi-strategy.
Overall, hedge funds lost 3.2 percent (the weighted average return) through the end of March, according to data collected by Citco for its 2022 first quarter hedge fund report. The report is based on hedge funds for which Citco performs P&L and net asset value services. Hedge funds that were hardest hit include stock strategies, which lost 6.8 percent, multi-strategy, which reported losses of 2.14 percent, and fixed income arbitrage, which lost 1.28 percent. Long-biased equity funds lost 14.8 percent, compared to long-short equity’s losses of 5.4 percent. All figures are weighted average returns.
The largest funds were hit the hardest: those with assets greater than $3 billion lost 3.7 percent. Funds with assets between $1 billion and $3 billion lost 3.25 percent, and funds with assets between $500 million and $1 billion turned in losses of 3.37 percent for the quarter, according to Citco.
Some strategies were able to take advantage of market volatility to turn in good results. Hedge funds with commodities-focused strategies delivered 12.09 percent average returns, and event-driven funds reported an average return of 9.16 percent for the quarter, according to Citco.
Hedge fund research firm PivotalPath, which tracks 2,400 institutional hedge funds representing $2.5 trillion in assets, had a different story for April. Its main composite index lost just .2 percent for the month. The S&P 500 declined 8.7 percent, while Nasdaq slid 13.3 percent. The leading strategies for the month were managed futures and global macro, which gained 4.5 percent and 3.5 percent, respectively. Equity strategies continued to slide in April, losing 4.4 percent in April and 11.9 percent for the year.
While performance fell short, investors and allocators added capital to hedge funds in the first quarter of 2022. According to Citco, hedge funds had inflows of $52.5 billion and redemptions of $38.9 billion, which resulted in net inflows of $13.6 billion. That’s more than twice the net subscriptions of the fourth quarter of 2021.
Again, larger funds, those with assets over $10 billion, were the biggest beneficiaries of new money. They pulled in $6.2 billion in the first quarter.
