Global hedge fund returns surged 7.1% in the fourth quarter of 2023, after edging down 0.1% in third quarter, pushing calendar year returns to 13.3%, said a report released Jan. 31 by Preqin.
Returns were driven largely by equities as global markets rose following a "bounce late in the fourth quarter as central banks indicated that (interest) rate hikes may be ending and that rate cuts could be on the horizon for 2024," Preqin noted in the report.
Global Hedge funds returned 2.6% in the fourth quarter of 2022 and -6.8% for all of 2022, according to last year's report.
Equity strategies ranked as the top-performing core hedge fund strategy in both the fourth quarter of 2023 and for the whole year, returning 7.2% and 13.4%, respectively.
Within equity strategies, long-bias and value-oriented equity funds led performance over the fourth quarter. Value-oriented equity funds jumped 8.2% in the fourth quarter and surged 18.5% for the year, while long-bias strategies gained 8.2% and by 15.4%, in the fourth quarter and full year, respectively. Long-short equity strategies generally missed some of the market upside, gaining 6.3% over the fourth quarter and rising 11% over the full year.
Event-driven funds placed as the second highest performer during both the fourth quarter (up 6.7%) as for the whole year (up 10.4%). This strategy benefited from merger activity late in the year, Preqin noted.
Hedge funds less connected to public equities or not directly focused on equity trading followed a less volatile path throughout the year, Preqin said, while credit and global macro funds demonstrated "average performance" for most of the year. However, credit funds received a boost in the fourth quarter as bond markets moved higher after central banks indicated that interest rate hikes would slow down.
Overall, credit funds returned 4.1% in the fourth quarter and 8.8% for the full year, while macro funds returned 2.4% in the fourth quarter and 6.7% for the year.
In the fourth quarter of 2022, equity strategies returned 4.1%, followed by event-driven (3.5%), credit (2.6%) and macro (0.5%).
By region, North America-focused hedge funds, which had a 7.6% return for the fourth quarter, outperformed those focused on Europe (5.1%) and the Asia-Pacific region (2.5%). Preqin noted that North America-focused funds were "supported by buoyant domestic markets in November and December."
However, hedge funds focused on emerging markets, were up 6.5%, outperforming their developed markets peers (5.9%) in the fourth quarter. For the year, emerging markets funds climbed 14.2%, compared with a 12.5% return for developed markets funds.
Preqin also said that equity strategies remained the most common type of hedge fund launched in the fourth quarter, accounting for more than one-third (36%) of all new fund starts. As of the end of the third quarter, equity strategy hedge funds accounted for 45% of the 10,850 active funds.
Separately, a report released on Jan. 30 by Nasdaq eVestment found that investors yanked more than $100 billion from hedge funds in 2023, marking the second consecutive year of outflows of this magnitude.
