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Komfie Manalo, Opalesque:

A joint study by the industry body Alternative Investment Management Association (AIMA) and data provider Preqin showed that hedge funds outperformed equities and bonds in 2016 on a risk-adjusted basis, producing net gains for their investors worth around $120bn.

Hedge funds' risk-adjusted return, as measured by the Sharpe ratio, was 1.45 for last year, outpacing the S&P 500 (1.1), MSCI World (0.68) and Barclays Global Aggregate (0.20) indices, the study said.

AIMA Chief Executive Jack Inglis said, "We already know from the various indices such as Preqin that have reported their flash numbers this month that 2016 was one of the better years for hedge funds since the financial crisis. Even though the headline numbers may not have met all investors' expectations, our analysis highlights the importance of explaining various strategies and timeframes for yielding returns to clients. Significantly, on average hedge funds outperform on the key metric of risk-adjusted returns over one year, three years and five years."

The research, based on a database of more than 3,000 funds, has found that hedge funds also outperformed stocks and bonds on a risk-adjusted basis over three years and five years. Risk-adjusted outperformance is highly valued by institutional investors such as pension funds since it reflects volatility as well as net returns.

On an absolute basis, hedge funds returned 7.4% last year, according to the Preqin All-Str......................

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