Hedge funds lost ground as an industry in the first three months of this year, but strategy areas such as macro, and entities such as commodity trading advisors (CTAs) were standouts for positive results.

The hedge fund industry was hit by a mix of weaker markets in the first quarter of this year as Russia’s invasion of Ukraine, soaring energy prices and rising inflation rattled investors. That said, macro strategies that seek to ride moves in interest rates and currencies delivered positive results.

The findings came from research firm Preqin in its first-quarter 2022 hedge fund report. 

Funds fell 1.47 per cent during the quarter, making this year’s decline the worst since the 2008 financial market crash, Preqin said.

More positively, macro and multi-strategy hedge funds were the best performing top level strategies, returning 5.74 per cent and 1.15 per cent respectively in Q1 2022. Of the two, the star of the show was certainly macro strategies, which generated positive returns in every month of Q1 2022; while relative value (-0.45 per cent) and event driven (-0.98 per cent) shielded allocators from volatility in Q1. 

Conversely, despite the recovery in equity markets, equity strategies ended up being the worst performing category within hedge funds with a decline of 4.42 per cent, the figures said.

“As hedge funds thrive on volatility, chaos and market stress lead to opportunities for the asset class as mispriced securities become known. Investors who did not give up on their hedge fund allocations before the Covid crisis were rewarded during the recovery,” Sam Monfared, vice president, research insights at Preqin, said. “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 Trading Advisors made returns of 6.79 per cent over the quarter. CTAs perform best when market volatility is accompanied by an extended period of market stress. “CTAs manage their clients' assets using a proprietary trading system or discretionary method that may involve going long or short in futures contracts in areas such as metals, grains, equity indexes, soft commodities and foreign exchange and government bond futures.)

In other details, the Preqin data showed that the sector pulled in $36 billion of new money in 2021, although it warned that market turmoil could give investors pause.

Preqin said that 74 per cent of investors plan to invest less than $50 million (the smallest allocation size) of fresh capital in hedge funds over the next 12 months, compared with 84 per cent of investors taking that view in the first quarter of a year earlier. Of larger sizes, only 3 per cent intend to put more than $300 million to work over the next 12 months.