Hedge funds finished the first half of the year in positive performance territory, with funds including Bridgewater Associates, Schonfeld Strategic Advisors and Aspect Capital posting double-digit gains.
Overall, hedge funds posted returns of 5.8% through the end of June, according to the PivotalPath hedge fund composite index.
“Hedge funds are doing relatively well in some choppy markets,” said PivotalPath CEO Jon Caplis.
PivotalPath’s equity quant index was the top-performing strategy, returning 9%, followed by equity diversified and equity sector indexes, both returning 7% for the first half.
Within the equity sector, the technology, media and telecom index was the top performer, returning 9%.
The worst-performing hedge fund indexes for the first half were volatility trading, up only 0.6% and event-driven hedge funds, up 3.6%, according to PivotalPath data.
During the first half, the S&P 500 notched a total return just north of 15%, with the Magnificent Seven technology stocks, especially chipmaker Nvidia, buoying performance.
In the first half, hedge funds "across most strategies show gains in the mid-to-high single digits. With that said, the past couple of months have been more challenging in terms of how much of the rally in equities [hedge funds] have captured, with June ranking as one of the weaker months this year for relative returns," according to a July 3 Morgan Stanley prime brokerage report viewed by Pensions & Investments, a sibling publication of Crain Currency.
HEDGE FUNDS LAGGED S&P
Hedge funds lagged equity markets during a first half that saw artificial intelligence and technology stocks boom amid interest rate and geopolitical uncertainty, said Tim Ng, a senior consultant at Fiducient Advisors. Multistrategy funds performed well in terms of trading fixed-income volatility and strong currency moves, he said.
“Macro [conditions] drove a lot of returns during the first quarter,” Ng said, adding that “in the second half, this should be a ripe market for fundamentally driven securities selection.”
Spokespeople for all hedge funds declined to comment on fund performance.
AQR Capital Management’s $1.5 billion multistrategy Apex strategy was up 13.5% through the end of June. The $110 billion manager’s AQR Helix strategy, an alternative trend following strategy, was up 8.8%, while its Delphi Long Short Equity Strategy was up 16.3% in the same period.
Aspect Capital, which has $9 billion in assets under management, saw its Diversified flagship fund finish June up 14.3%.
In a note seen by Pensions & Investments, Aspect’s director of investment solutions, Razvan Remsing, said: “The most significant macro story of the last couple of years has been the emergence out of the Zero-Interest-Rate-Policy era, creating a more, dare I say, ‘normal’ dynamic and divergent environment across financial asset classes. In addition, the presently febrile geopolitical landscape, coupled with slow-moving structural change in the energy complex and effects of El Niño, has meant commodity markets have been increasingly relevant on the macro stage.”
The $22 billion Atlas fund of the multistrategy firm Balyasny Asset Management was up 5.5%.
Seth Klarman’s $23 billion Baupost Group posted consolidated performance just shy of 4% through the end of June.
Bridgewater Associates' Pure Alpha II fund finished June up 14.3%, and the Connecticut-based firm had $108 billion in assets under management as of July 1.
Ken Griffin’s $63 billion Citadel saw its Wellington fund end June up 8.1%, while its Global Equities fund returned 9.9% and its Global Fixed Income fund 2.2%.
Millennium ended June up 6.9% and was managing $69.7 billion as of July 1.
Steve Cohen’s $33.9 billion Point72 Asset Management was up 8.7%.
The $10.6 billion Schonfeld Strategic Advisor’s Strategic Partners fund was up 10.3%, and its Fundamental Equity fund was up 11%.
Graham Capital Management, which has $20.1 billion in assets under management, saw its $6.3 billion Quant Macro fund finish up 12.5% at the end of June.
Year-to-date dispersion for the hedge fund composite is 3.4%, equivalent to the 2023 average, PivotalPath data showed.
And while there has been some hand-wringing around hedge fund fees and the longer lockups some of the largest multistrategy firms have commanded, Caplis said performance for the multistrategy segment has been “good enough that those concerns have died down for the short term.”
MACRO IN FAVOR
Zhe Shen, managing director and head of diversifying strategies at $7.7 billion TIFF Investment Management, is bullish on hedge funds and “thinks investors should reevaluate adding hedge funds to their portfolios” during an environment of higher interest rates. TIFF has made some new additions to its hedge fund portfolio, adding a market-neutral long/short equity clean energy manager and an absolute return systematic strategy, Shen said declining to name the managers.
Shen also believes the current environment should favor macro managers.
“Generally, macro funds that have a good process, good trading-oriented approach will do better in this environment because there are better hunting grounds,” he said.
More volatility is due in the second half of the year with the November U.S. presidential election and uncertainty about when, and how many times, the Federal Reserve may cut rates.
Some large hedge fund launches got off the ground so far this year, including Bobby Jain’s multistrategy hedge fund Jain Global debuting with $5.3 billion and Diego Megia, formerly a senior trader at Millennium Management, launching Taula Capital Management with $5 billion.
While hedge funds have faced outflows for the past 22 months, strong performance could help in the second half of the year.
“Performance has been pretty strong so far in ’24,” said Roark Stahler, Americas head of strategic consulting at Barclays. “Investors pumped the breaks in ’23 in terms of incremental flows, but the strong performance out of the gate in ’24 is helpful.”
With higher interest rates, hedge funds should post stronger performance compared with the low-rate environment that was present leading up to COVID-19, TIFF’s Shen said.
“This new dynamic means we think hedge funds will post much stronger absolute performance,” he said. “But still manager selection and knowing which ones to invest in are critically important.”