Hedge funds outperformed equities and bonds on a risk-adjusted basis according to a new report from the Alternative Investment Management Association.
Using data provided by alternative asset intelligence company Preqin, the association found hedge funds delivered a Sharpe ratio of 1.45 for 2016, placing them ahead of the S&P 500’s 1.1 and the MSCI World Index’ 0.68.
“The analysis, based on a database of more than 3,000 funds, found that hedge funds also outperformed stocks and bonds on a risk-adjusted basis over three years and five years,” the Alternative Investment Management Association (AIMA) said.
AIMA said that hedge funds returned 7.4 per cent on an absolute basis in 2016, based on the Preqin All Strategies Hedge Fund Index, with the net gain in asset value estimated at $120 billion.
“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,” said Preqin head of hedge funds Amy Bensted.
“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.”
Preqin’s data also found differences in returns between funds that were open to outside investors and funds that were not, with the former delivering an average of 6.75 per cent per annum and the latter returning an average 6.42 per cent per annum on a five year annualised basis, AIMA said.