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Laxman Pai, Opalesque Asia:

Hedge funds have provided their best downside protection in the ongoing bear market, as a proportion of broader market falls, since the dotcom crash at the turn of the 21st century, said a study.

According to new research from WTW (formerly Willis Towers Watson), hedge funds have delivered downside management with returns of -5.6% between January and June 2022 (on the HFRI Fund Weighted Composite Index) compared with broader equity market declines of -20.5% on the MSCI World Index.

This means that hedge funds have tracked just over one-quarter (27% proportion) of broader market declines over this period. This compares favorably with the initial pandemic panic seen in markets in early 2020, when a -11.6% drop from hedge funds matched more than half of the -21.1% drop in equities over the same bear market period (January to March 2020).

WTW highlighted that ongoing positive momentum in delivering a strong client value proposition "will be essential for hedge funds to stay relevant" and would empower more investors to tap into hedge funds' full potential and generate better returns.

According to the report, today's downside management is not as strong as was seen in the dot-com crash when hedge funds almost avoided a negative return while markets fell by nearly half; however, the current performance offers a striking parallel to the downside management seen from hedge funds during the early 1990s, when the invasion of Kuwait caused an o......................

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