After underperforming for the last few years, hedge funds in general outperformed the overall stock market in 2022.
- In 2022, hedge funds delivered broad-based annual returns of 10.3%, according to the benchmark HFRI Fund Weighted Composite Index from Hedge Fund Research.
- Citadel gained 32% year-to-date through November 2022 and is expected to return $7 billion in profits to investors.
- The D. E. Shaw Group and Millennium Management gained 23% and 10% through the end of November.
- These profit surges could be marking a comeback season for hedge funds.
Why it’s news
Many hedge funds have suffered a rough few years as performance was down significantly, but this year many have had billions in profits marking a comeback for hedge funds. Meanwhile the S&P 500 Index was down 19% for 2022.
After the 2008 Global Financial Crisis, easy money policies by global central banks kept money on the low end, limiting dispersion in the equity market. High dispersion, or a wide range of outcomes for an investment, is a key driver of hedge fund performance, according to Yahoo Finance writer Alexandra Semenova.
Hedge funds good runs this year could have changed that former dynamic.
“Rate increases make it likely that equity performance dispersion will increase,” says the head of hedge fund research for iCapital, Joseph Burns. “which should allow greater room for these active strategies to find opportunities and inefficiencies in the market.”
While some hedge funds have regained their confidence, others are still in the dumps, including Tiger Global Management, Chase Coleman’s tech-focused firm, which is said to be down 54% this year.
Although some are still fighting for a good year the few big-name winners have marked a turning point for hedge funds and have led the way to show others what needs to be done.