Global hedge funds had a good year in 2016, though some strategies fared considerably better than others. According to reports released by the Hedge Fund Research Inc, strategies which went against convention performed beyond industry standards. Risk chasers had the biggest returns on the year. Funds focused on reviving struggling companies and activist investors performed better than the S&P 500. Event-driven strategies and credit strategies also yielded good results. As a whole, the HFRI Fund Weighted Composite Index returned 5.6 percent.
“Following a disappointing decline in 2015, hedge fund performance in 2016 was the highest since 2013 and not only tops indices of global equities, but also the annualized HFRI performance over the last five and 10 years,” said Kenneth Heinz, president of HFR. “The recent (post-election) increase in investor risk tolerance is likely to drive continued performance and capital gains into mid-2017.”
The bar was set quite high by the S&P 500, which had a price gain of roughly 10 percent. The index of distressed-funds scaled over by posting 13.4 percent in returns, much higher than the 10.2 percent gotten from event-driven strategies.
The market faced a fair amount of turbulence in 2016, with a flurry of high-profile withdrawals. Net asset flow was a loss of $51.4 billion, but thanks to the strong performance, assets under management was up 2.6 percent on 2015 to $2.97 trillion. Things were particularly exciting for funds in Brazil. Having come from a miserable 2015 with a 28.6 percent decline, the country rebounded strongly with a 33.3 percent rise, for the best performance worldwide. Russia also made investors happy with its 28.6 percent performance. Latin America was also a high earner, up by 26.2 percent. Those who operated a macro-strategy got a modest 1.5 percent increase, which was better than the worst performer – Technology, which was up by a mere 0.8 percent.