A regular monitor of how hedge funds' performance reveals itself shows the sector was unable to completely escape the impact of a big fall in equities in early August, although stocks later recovered to some extent.

The slide in equities in early August, with big sell-offs to “Magnificent Seven” big tech firms causing headlines, hit the overall performance of hedge funds last month, according to industry data. The HFRI Asset Weighted Composite Index of returns, produced by Hedge Fund Research, fell 1.45 per cent in August on a month before. For the year-to-date, it is up 4.41 per cent.

About 60 per cent of hedge funds produced positive performance in August, HFR, which is based in Chicago, said in a monthly report. 

Hedge fund performance was led by equity hedge and fixed income-based relative value arbitrage strategies in August. The HFRI Fund Weighted Composite Index (FWC)® advanced 0.25 per cent for the month. That index has risen 6.75 per cent since the start of 2024. 

An important part of the private banking and wealth management toolbox, hedge funds’ performance have waxed and waned in recent years. Hedge funds haven't always enjoyed strong returns – and some strategies have hit trouble, prompting pushback against their relatively high fees. However, despite certain naysayers such as Warren Buffett, they appear to be a fixture in the wealth management landscape.

This week, HFR also announced that it has launched a “Multi-Manager/Pod Shop Index.” The index consists of funds of various strategy types that use a multi-manager/pod structure, whereby fund capital is allocated to multiple independent investment teams. The “Pods” are autonomous but generally operate within certain portfolio management or risk guidelines; capital is allocated to or from these pods in a discretionary manner under the supervision of a chief investment officer.

HFR said it reckons that about $425 billion is managed in multi-manager funds.

Strategies
Equity hedge funds, which invest long and short across specialised sub-strategies, led performance gains in August, driven by healthcare and technology sub-strategies. The HFRI Equity Hedge (Total) Index advanced by an estimated 0.8 per cent for the month to bring its year-to-date return to 9.0 per cent, leading all strategy indices over the first eight months of the year.

Fixed income-based, interest rate-sensitive strategies also gained in August, navigating the inflection point shift from rising inflation concerns to falling interest rates/moderating inflation, as well as accelerating geopolitical uncertainty. The HFRI Relative Value (Total) Index advanced an estimated  0.4 per cent in August, led by the HFRI RV: Convertible Arbitrage Index, which gained 1.1 per cent, and the HFRI RV: Corporate Index, which added 0.7 per cent for the month.

Event-driven strategies, which often focus on out-of-favour, deep value equity exposures and speculation on M&A deals, posted mixed performance for August after leading strategy gains in July, as gains in activist and special situations exposures were offset by falls in other event-driven sub-strategies. The HFRI Event-Driven (Total) Index posted a modest gain of 0.15 per cent, led by the HFRI ED: Activist Index, which gained 1.2 per cent, and the HFRI ED: Special Situations Index, which rose by 0.6 per cent.

Macro sags
Macro strategies extended declines in August as equity volatility surged to begin the month and interest rates fell, driven by losses in quantitative, trend-following Commodity Trading Advisor (CTA) strategies. The HFRI Macro (Total) Index fell 1.1 per cent in August, the fourth consecutive monthly decline, with losses led by the HFRI Macro: Systematic Diversified Index, which fell -2.9 per cent for the month. Partially offsetting these declines, the HFRI Macro: Active Trading Index surged by 4.7 per cent, leading all sub-strategy indices in August, while the HFRI Macro: Multi-Strategy Index added 0.5 per cent for the month.

As reported here yesterday, hedge funds’ assets under management rose in the second quarter of 2024 to an estimated $4.7 trillion, although the quarter-on-quarter rise of 0.11 per cent, or $5.3 billion, was less than the far larger figure – $186 billion – that funds added in the first three months of the year, according to Preqin, the research firm.