The hedge fund industry has faced challenges in recent years, including questions about the funds' effectiveness and whether returns justify higher fees. Despite these concerns, data show hedge funds lower volatility.
Allocations stable: Hedge fund allocations across the P&I 1000 have remained stable, while alternatives allocations have increased. However, these allocations do not account for hedge fund investments included in broader equity and bond portfolios.
Fees down: Hedge fund managers yielded to demands for lower fees with average management and incentive fees dropping by about 10% each since 2010. Returns were about 4% over the same period.
Downside protection: Hedge funds have protected investors from market downturns since 2010, with an average three-year return of 2.9% when the S&P 500 is negative. Volatility increases in times of market stress, but to a lesser degree than equities.
Market growth: Hedge funds as a group saw annual market appreciation in each year since 2009 despite periods of negative net client flows. Data from the 2018 P&I hedge fund survey show the industry AUM grew 18.4% due to client flows and market gains.
*Year to date as of June 30. Sources: P&I Research Center, Hedge Fund Research Inc., Bloomberg LP