Hedge Fund Guide Aims To Remind Investors Of What They May Be Missing

Tom Burroughes

23 November 2012

Hedge funds may not feel all that loved but a new guide by an industry group in association with Deutsche Bank says that an investor starting out with $100 at the start of the last decade earned returns almost twice as large in hedge funds than in the regular stock market.

Earlier this week, the Alternative Investment Management Association, the hedge fund association representing the $1.8 trillion industry, issued a new edition of its educational guide for institutions putting money into the sector: the Roadmap to Hedge Funds.

A hypothetical investment in the S&P 500 Total Return Index of $100 at the beginning of the last decade stood at $121 by August 2012, while a hypothetical investment of $100 in the HFRI Fund Weighted Hedge Fund Index stood at $201, the report said. (Editor's note: In light of how the wealth management industry is - or ought to be - in the business of wealth preservation, that is a compelling set of figures.)

The report outlines how, in the view of the authors, the “volatile external environment has driven an ever greater need for active risk management." In re-affirming the case for investing in hedge funds, the Roadmap highlights how the industry responded swiftly to the losses of 2082.

The report is not shy of reminding readers that while some hedge funds suffered heavy losses in 2008, the sector had bounced back by October 2010, far more successfully than for global equities, which are not seen as recovering their ground until at least 2015.

Among trends highlighted in the report is the continued “institutionalisation” of the hedge fund market, as groups such as pension funds put money into the sector.