Hedge Funds | Funds Hub

Aug 11, 2011 07:37 EDT

A choice between risk and return?

By Dunny P. Moonesawmy. Head of Fund Research for Lipper in Western Europe/Middle East and Africa. The views expressed are his own.

Hedge funds have delivered decent risk-return results over the past ten years. And as transparency and liquidity increased post-credit crisis, they have regained their appeal as providers of absolute return opportunities for investors. In addition, an increasing lack of market visibility globally has played to hedge funds’ supposed strengths, with total industry assets under management now exceeding the $2 trillion, according to Hedge Fund Research.

There is a divide, however, with the industry split between single hedge funds — totaling more than 11,000 in the Lipper database — and some 867 funds of hedge funds (FoHFs). The general perception is that single-manager hedge funds are the more risky investment and to cushion that risk, some investors prefer to diversify their portfolio by investing in FoHFs instead. But is it worth it?

An analysis of single hedge funds and FoHFs during the past ten years shows interesting results in terms of performance and risk. Indeed, whether on a cumulative basis over 3-, 5- or 10-years or accounting for calendar years in 2008, 2009 and 2010, single manager hedge funds performed significantly better on average than FoHFs.

For details of performance, click on this link.

Outperformance of single-manager hedge funds is clear during these periods but since the beginning of the year both single managers and multi-managers have performed poorly, in euro terms, with a little advantage for multi-manager funds.

On a risk level, we have an opposite situation. Funds of hedge funds demonstrated better resistance to the downturn, with a maximum drawdown over 3 years of -19.42 percent against -24.55 percent for single hedge funds. If we take their volatility into account, we have similar results, with FoHFs showing smoother performance pattern over 3, 5 and 10 years. We have here the mirror image of the performance factor, with FoHFs demonstrating strong risk-management compared to single hedge funds.

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Jun 16, 2011 03:21 EDT

Laurence Fletcher

Morning Line-Up: euro bets, launch, India

family offices | hedge funds | india

News and views on the asset management industry from Reuters and elsewhere:

Hedge funds ramp up extreme bets against euro – WSJ

Family offices look to add more hedge funds – NYT Dealbook

Ex-DKR Fischer aims to raise up to $1 bln in hedge fund -Reuters

Chelsea highlights 26 bln stg of underperforming funds – FT Adviser

Funds struggle to deliver expected returns in India – WSJ

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May 18, 2011 06:40 EDT

Joel Dimmock

Hedge funds vs mutual funds

By Dunny P. Moonesawmy, Head of Fund Research for Lipper in western Europe, Middle East and Africa. The views expressed are his own.

Hedge funds took some heat from the credit crisis as liquidity and transparency became critical factors in investment decision-making. It’s fair to say hedge funds continued to deliver decent returns to investors, but how do they compare to mutual funds if we focus on performance and risk alone?

In 2008, the average return for mutual funds stood at a negative 22.91 percent. At the same time, hedge funds posted average returns of minus 8.37 percent. We might have expected a stronger rebound for mutual funds in 2009 and 2010 than for hedge funds, yet the data shows better average returns for hedge funds in both years. Positive returns in the sector stood at 22.36 percent and 18.08 percent respectively against 21.16 percent and 10.23 percent for mutual funds.

If we look at performance over a longer time frame, mutual funds posted annualized returns of 2.07 percent over 3 years and 1.85 percent over 10 years while hedge funds recorded returns of 8.81 percent and 3.77 percent respectively.

We have a different story on the risk side. Part of the appeal of hedge funds is that they seek to actively manage volatility, but managers struggled to keep volatility under control during the credit crisis. The 3-year annualized standard deviation was higher than mutual funds (19.19 percent against 16.65 percent) and the 10-year figures showed similar results (16.80 percent against 12.44 percent).

If we go deeper into the data, we can note that volatility is strongly linked to the asset class for mutual funds while at the same time performance and volatility are positively correlated. As a simple example, a bond category will tend to have lower volatility and lower performance than an equity category. And likewise, an aggressive diversified fund will likely to have higher performance and volatility than a conservative diversified fund.

To view a graphic of the performance data, click on this link.

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Mar 23, 2011 04:25 EDT

Tommy Wilkes