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Average gains of +4.00% lifted YTD average returns to +11.02%, past the level in 2019 (+10.07%) and to the highest level since 2009 (+19.44%). While average returns in 2020 were elevated, there have been several years of similar returns since 2009 (+10% in 2019, +9% in 2017, +10% in 2013 and +11% in 2010).

Despite the high average returns across the industry, 2020 was a year where the dispersion of returns was significant, especially among large funds. The ten largest reporting funds through December 2020 produced an average gain of only +3.72% in 2020, almost 3x below the industry average, but that figure does not at all represent the returns generally produced by the group.

Despite an average return near 4%, only one fund within the ten largest was close to that average value. There were more large funds with double digit-gains and double-digit losses than not in 2020.

The last two months of 2020 made a significant difference for the perception of macro managers' performance in 2020. Among the largest macro funds reporting, average gains for the year were +8.75% with average returns in the last two months over +7%. There were still some significant losses in 2020 within the group, which will cause concern among investors, but there were also products which proved over several consecutive years now they are able to perform in the face of widely varying conditions.

Managed futures funds ended 2020 with average gains of +5.10%

Managed futures funds ended 2020 on a much needed high note with average gains of +5.10%. The largest managers in the group were up an average near 6%, though for 2020 the group of the largest managed futures produced near flat average returns. Unlike the group of large funds overall, the largest managed futures segment had many funds near the average, though most of them were negative for the year.

Multi-strategy managers produced average gains over 10% for 2020 and many of the largest managers produced exceptional returns for the year. Average gains for the very largest appear ok (+8.40%), but there was only one within the ten which produced a single-digit return in 2020. The average gain among the largest multi-strategy managers was over +20%, while the average loss was even higher. For the most part, 2020 will go down as a very good year for multi-strategy managers.

Within the long/short equity space the prominence of losses among large funds was most apparent. The average of all long/short equity funds in 2020 was near +15%, which compared to global equities is better than past years, but there were some significant losses and scattered mediocre returns among large funds. Similar to the macro space, 2020 will likely go down as a good year for some long/short managers and a horrendous one for others.

Hedge fund performance is a difficult topic to apply broad statements of success or underperformance. Despite what appears to be broad measure of success in 2020, within almost every major strategy there are managers at either end of the spectrum. The most important takeaway for investors is to understand why for each individual manager their approach and methodologies are either working, or not, in the current environment and whether that is a near-term aberration or longer-term issue with how those philosophies fit into current market dynamics. The variation of returns around the industry this year at the very least should result in heightened communication and enabling a deeper understanding of each individual investors portfolio of managers.

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