Hedge fund managers produced aggregate performance of 10.3% in the year ended Dec. 31, down from 11.8% the previous year, returns of the HFRI Fund Weighted Composite index showed.
The year was "dominated by uncertainty and high volatility as managers navigated the dual challenges of increasing interest rates and inflation as well as the impacts of the second year of the global coronavirus pandemic," said HFR researchers in a report accompanying the performance data, which was released Jan. 7.
Despite trailing the index's 2020 return, the index's 2021 return was the third highest since year-end 2009 when the HFRI Fund Weighted Composite returned 19.98%, according to the HFR historical index data.
By hedge fund category, the HFRI Event-Driven (Total) index had the best return of 13.06% in the year ended Dec. 31 followed by the 11.96% return of the HFRI Equity Hedge (Total) index; HFRI Relative Value (Total) index, 7.65%; and HFRI Macro (Total) index, 7.52%.
"Led by high-beta strategies of equity hedge, event-driven and commodities, hedge funds concluded 2021 with strong performance in December (1.28%), capping a robust two-year period and successfully navigating extreme volatility and market-cycle dislocations since the inception of the coronavirus pandemic and global quarantine as the hedge fund industry surpassed $4 trillion in capital," said Kenneth J. Heinz, HFR's president in a news release accompanying the data.
"(Going) into 2022, hedge fund managers are positioning for continued volatility associated with the global pandemic, but are tactically focused on capital preservation across equity, fixed income and commodity markets, considering the powerful dynamics of rising interest rates and record inflation," Mr. Heinz said.