Key Observations
- Hedge funds shined in 2022 when both equities and fixed income markets experienced sharp declines.
- Diversification across various hedge fund managers and strategy types continues to be a key characteristic of successful all-weather marketable alternatives programs.
- Strong performance in recent years from multimanager hedge funds resulted in an influx of capital into that space.
- Amidst the backdrop of a higher costs of capital, tightening credit and overall market uncertainty, convertible bonds remain a compelling instrument for companies and investors alike.
A Bright Spot in a Dark Year
Many allocators are happy to see 2022 fade into the distance as they look through the rearview mirror. While 2022 was a challenging year for many investors, The HFRI Asset Weighted Composite generated a return of 0.7% and hedge funds in general proved to be a bright spot in client portfolios. This is in stark contrast to the declines experienced by both equity and fixed income markets, down 18.1% and 16.2% for the MSCI World and Bloomberg Aggregate respectfully 1.
Despite the positive relative performance across the hedge fund industry relative to other asset classes, performance was hardly uniform across all strategy types. Strategies typically associated with higher equity beta profiles such as HFRI Equity Hedge and HFRI Event Driven struggled in 2022 and were down 8.5% and 8.2% respectively. On the other hand, historically less correlated strategies such as Global Macro excelled in large part due to being positioned to benefit from higher interest rates.
