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Hedge Funds (HF) are up 4.2% year-to-date as of March 2024, which compares well with diversified global allocations, including 40/60 Equity/Bond portfolios which are up around +2.2% and have higher volatility.
The first quarter of 2024 has been unusually strong for hedge fund performance, with gains across many strategies, not least in those exposed to momentum in either time-series or cross-sectional form. Equity markets have ground higher as economic data continues to suggest a more benign backdrop than expected.
In 2024, we anticipate a further concentration of hedge fund flows, with a small percentage of managers likely attracting 90% of net assets within the industry. To succeed, it's insufficient merely to offer a high-quality product with a strong track record.
With the threat of recession growing, we examined hedge fund performance during recessionary periods over the last three decades, finding that they have demonstrably outperformed when stocks have declined.
Analysts project 11.5% earnings growth and 5.5% revenue growth for S&P 500 companies in 2024. Fortunately, analysts see positive earnings and revenue growth for all eleven market sectors this year.
No doubt, this increase in market interest is reassuring, and several hedge funds have seen performance soar due to the pandemic-induced volatility. However, other strategies have suffered the opposite fate.
In terms of life-spans (see Figure 1), this paper estimates that 70 per cent of hedge funds die within 47 months (i.e. 3.92 years) and the annual attrition rate is 8.67 per cent per annum.
In summary, a hedge fund is more likely to survive if it has leverage and high Sharpe ratios. High leverage increases the likelihood of covering costs, and the high Sharpe ratio reduces the risk of a catastrophic loss.
Hedge fund performance was generally positive in March; the average asset weighted hedge fund net return across all strategies was 2.06%. For a second month, all hedge fund strategy groups had positive average returns. Hedge fund performance dispersion was narrower than observed in February.
Overall, the consensus is that hedge funds will continue to grow but will adapt to lower fees, greater use of technology, and increased access to retail investors.
The industry added $190 billion in assets in the first quarter, the sixth consecutive quarter of growth, it said. Hedge funds' performance was the main driver of asset growth, as funds went up 4.52% in the first quarter, according to the HFRI Fund Weighted Composite index.
Introduction: My name is Merrill Bechtelar CPA, I am a clean, agreeable, glorious, magnificent, witty, enchanting, comfortable person who loves writing and wants to share my knowledge and understanding with you.
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