Hedge funds have lowest annual return since 2011

Hedge funds on average returned only 1.56 percent last year in challenging markets, the lowest annual return since 2011.

However, hedge funds outperformed the underlying equity markets such as the MSCI World Index, which lost 0.48 percent for the year, data provider Eurekahedge reported.

Assets under management by the industry increased by US$110 billion in 2015. More than half of this figure represents new investor capital inflows.

The most successful market for hedge funds was Japan, where managers gained 6.21 percent, followed by European managers, who returned 5.06 percent.

North American funds trailed with a flat performance of 0.03 percent.

Hedge funds focusing on China outperformed the CSI 300 Index by 6.5 percent and returned 12.08 percent for the year, after a rally in the fourth quarter, with gains of 8.52 percent.

Investment strategies 

Distressed debt was the worst performing hedge fund strategy of the year, down 5.31 percent, the biggest loss since 2008.

Arbitrage strategies, in contrast, were up 4.46 percent, buoyed by volatility arbitrage trading strategies, followed by long/short equities and then macro managers with gains of 2.99 percent and 2.36 percent, respectively.

During the last quarter, macro managers’ allocations into FX, equity indexes and metals have led to some hedge funds posting modest gains on a year-to-date basis. Toward the end of the year, FX continued to be a key trading theme for macro managers building positions in the euro, yen and the U.S. dollar pairs.