Posted by & filed under Hedge Fund Performance.

By Susan Barreto, Alternatives Watch

Hedge fund managers, many of which had a stellar 2020, have reported a significant upswing in returns and confidence as some industry observers believe that the sector has had its best first half performance since 1999.

According to figures compiled by HSBC, the world’s top performing strategies ranged from 80%-plus to just over 20% in the first five plus months of 2021. If the investment performance holds for the rest of the year, hedge funds as a whole are set to substantially gain where they have been for the past decade.

HFR goes one step further in characterizing June’s performance as extending a winning streak that is officially the best first half of a calendar year since 1999, driving by optimism regarding the U.S. reopening. But it comes despite signs of rising inflation in both the U.S. and Europe.

The HFRI Fund Weighted Composite Index gained 0.4% in June, but for the first half of the year is up 10% and marks the longest stretch of index gains since 2018 when the index was up for 15 consecutive months ending in January 2018. 

For the trailing nine-month period ending June 2021, the HFRI FWC has surged 22%. 

“While investor optimism regarding the global reopening remains strong and justified, hedge fund managers and investors are positioning for a dynamic performance environment which may shift rapidly as a function of political developments, new information on virus mutation and vaccine efficacy, as well as demand shifts relating to consumer, technology and energy trends,” said Kenneth Heinz, president of HFR in a statement. 

He observed that managers are positioning to monetize opportunities created as well as preserve capital through the volatility, which he sees as being attractive to institutional investor capital and lead industry growth in the second half. 

 Another new index that looks at confidence in the sector, found that economic prospects for hedge funds is on the rise.

The AIMA Hedge Fund Confidence Index surveyed a sample of more than 300 hedge funds that account for roughly $1 trillion in assets. The measure they came up with is based on the economic prospects of their business over the coming 12 months. 

At the end Q2 the Confidence index sat at 19.51, which was up for the average rating of 18.4 reported in Q1, when over 90% of hedge funds expressed confidence.

Among US-based funds the score was higher or 22.5 in the second quarter.

Optimism across the hedge fund industry is the highest it has been for many years underpinned by several factors, according to AIMA. Those factors include fund performance, investors noticing the improving performance and lastly allocations from investors are on the rise.

Investors, officials added, are increasingly seeing allocations to hedge funds as an effective route to gain exposure to digital assets and ESG-focused strategies. Increasing numbers of hedge funds are exploring the crypto space, with some notable names entering the market over the past quarter. Interest in this area is expected to grow further, with hedge fund participation being the catalyst for new investment strategies to be developed, according to the AIMA Confidence Index report.

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