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Hedge Funds rally return 4.06% in Q3 2016

Monday, October 17, 2016
Opalesque Industry Update - The Preqin All-Strategies Hedge Fund benchmark recorded gains of 0.91% in September, marking the seventh successive month of positive performance as the industry delivered returns of 4.06% through the third quarter. These gains mark an improvement from both Q2 and Q1, in which they posted returns of 2.13% and -0.81% respectively. Furthermore, it represents the best quarterly performance since Q1 2013, when the industry returned 4.10%. In 2016 YTD, hedge funds have posted total gains of 5.41% despite suffering loses at the beginning of the year.

All leading hedge fund strategies posted gains through Q3, with macro strategies representing the lowest quarterly gains (+1.94%), and equity strategies posting the highest returns (+5.18%). Event driven strategies returned 4.59% in Q3 to take their 2016 YTD performance to 7.90%, the highest of any strategy. By contrast, relative value strategy funds posted year-to-date gains of 3.11%, the lowest of any strategy. Credit and macro strategies are the only leading funds to have posted gains in all three quarters through 2016, and have returned 5.85% and 5.27% YTD respectively.

Other Key Hedge Fund Performance Facts:

  • Activists See Strong Q3: Activist funds generated robust returns of 5.49% in Q3, taking 2016 YTD performance to 5.95%. Volatility trading funds posted gains of 2.18% over the third quarter of 2016 and have added 6.74% through the year so far.

  • Performance by Region: North America-focused hedge funds delivered the highest returns of any region in Q3 (+5.14%). Emerging markets-focused funds have the best performance of any region in 2016 YTD, with returns of 8.87%; Europe-focused funds have posted 1.32% in 2016 YTD, the lowest of any region.

  • CTAs Falter: CTAs have failed to maintain the momentum they generated in the first half of 2016, and have posted overall losses of 1.82% in Q3. This sees 2016 YTD returns fall to 0.97%, and 12-month performance dip to 0.22%.

  • Smallest Funds Make Gains: Emerging hedge funds* saw the greatest returns of any size classification in Q3, generating 4.27%, while large hedge funds saw the smallest gains (+2.94%). Across the year so far, emerging funds lead the way with returns of 6.04%, while large hedge funds have posted gains of 2.27%.

  • Discretionary Funds Win Out: Although discretionary funds suffered losses in Q1 (-1.58%), returns of 4.52% in Q3 have taken 2016 YTD performance to 4.85%. In contrast, systematic funds posted far smaller gains of 1.65% through Q3, and their performance through the year so far stands at 3.81%.

"Hedge funds have delivered consistent positive returns over the past seven months, marking the Preqin All- Strategies Hedge Fund benchmark’s longest successive run of monthly gains since 2012-2013. In the current environment, in which an unprecedented proportion (79%) of investors stated to Preqin in June that they were dissatisfied with the performance of their hedge fund portfolios over the past 12 months, fund managers and investors alike will welcome this run of solid returns.

Within the universe of 22,810 funds open to investment, it has been the smallest funds – those with less than $100mn in assets - that have had the most success in terms of performance in 2016. With a large proportion of inflows over the last few years going to the largest managers in the hedge fund industry, we may see investors look towards the smaller end of the spectrum in their search for hedge fund returns going forward.”

Amy Bensted – Head of Hedge Fund Products, Preqin

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