Hedge funds with a macro or multi-strategy focus were among the best performing funds in the first quarter, shielding investors from geopolitical turmoil, high inflation numbers and shifting monetary policies, according to Preqin, a privately-held London-based investment data company that provides financial data and information on the alternative assets market.
The firm said that, in a historical context, first quarter performance was “certainly disappointing but hedge funds managed to guard investors against major pullbacks.”
Hedge funds down 1.47% in Q1
The first quarter of 2022 ended up being one of the most challenging quarters for hedge funds with the strong 2021 momentum coming to an end, Preqin said. The asset class declined 1.47 percent during the quarter, making this year’s decline the worst post Global Financial Crisis and the third lowest first quarter return ever recorded by Preqin.
Its data showed that despite the pressure, macro and multi-strategy hedge funds were the best performing top level strategies, returning 5.74 percent and 1.15 percent respectively in the first quarter. The star of the show was certainly macro strategies, which generated positive returns in every month of the quarter.
Despite the recovery in equity markets, equity strategies ended up being the worst performing category within hedge funds with a decline of 4.42 percent.
“As hedge funds thrive on volatility, chaos and market stress lead to opportunities for the asset class as mispriced securities become known,” said Sam Monfared, Vice President, Research Insights at Preqin. “Investors who did not give up on their hedge fund allocations before the Covid crisis were rewarded during the recovery.”
Hedge funds to be tested again in coming months
“So, while hedge funds certainly struggled in Q1 2022, they did perform as expected in many categories. The asset class will be put to test in the coming months and if the past is any indication of the future, hedge funds performance will not disappoint.”
Commodity funds, as defined through Commodity Trading Advisors, or CTAs, showed good returns with +6.79 percent over the quarter. Preqin said that CTAs perform best when market volatility is accompanied by an extended period of market stress meaning the current environment resulted in an ideal market condition for the category. CTAs are generally purely price based in their analysis and follow their models regardless of fundamentals, and this paid off during the first quarter, the firm said.
Market confusion holds back inflows
Preqin said its performance data showed that when the correct strategies are picked, hedge funds can bring substantial value to portfolios. The industry experienced positive inflows in 2021 of 36 billion dollars, but the confusion in the market could impact how investors rotate their capital.
According to Preqin, 74 percent of investors are intending to invest less than 50 million dollars (the smallest allocation size) of fresh capital in hedge funds over the next 12 months, compared to 84 percent of investors in the same period last year. Of larger sizes, only 3 percent are aiming to put over 300 million to work over the next 12 months.
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