February 3, 2023

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Worst year for hedge funds since the financial crisis – E24

2022 is set to produce the worst development in hedge fund earnings in 14 years. However, they have outperformed the overall stock market.

It’s been a tough year for stock markets in many parts of the world, including here on Wall Street in the USA.
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Financial markets have never been so calm and peaceful in 2022.

High price growth in the wake of the Corona pandemic, a strong labor market, sharp interest rate increases from central banks, and the war in Ukraine are just some of the things that left their mark throughout the year.

This contributed to significant volatility and declines in stock markets in several places.

Hedge funds are likely to post their worst earnings performance since 2008, during the financial crisis Reuters.

Earnings are on track to fall 6.5% in 2022, according to investment data firm Prequin. This would be the biggest development since the 13 percent decline in 2008.

“With declines across nearly all asset classes, with energy and commodities being the notable exceptions, there were very few opportunities for investors to avoid losses,” Graham Harrison, head of asset risk advisory, tells financial times.

Worse for stocks

Hedge funds are investment companies or funds that often have very free mandates, and they can distribute money across several forms of investment, markets, and strategies.

They can invest in stocks, bonds, currencies, raw materials and derivatives. These funds can also engage in short trading, which involves betting, for example, that a stock will go down.

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Most hedge funds aim to make a profit no matter how the market develops. They often do better than mutual funds in recessions, but worse in booms.

Hedge funds seem to have done better in tough years as well in 2022.

One of the measures used for developments in the global stock market is the MSCI World Index. It includes market developments in a number of Western countries, as well as important Asian markets such as Japan, Hong Kong, Singapore and Australia.

The index fell by more than 18 percent in 2022.

– Very sensitive to college events

The bond market, another central arena for investments, was also hit hard during a year marked by strong price growth and rising interest rates. The market value of bonds, which have a certain interest rate, is basically going down now as the market rate of interest goes up.

Bloomberg’s Global Composite Bond Index is down about 16 percent for the year.

More than at any other time in recent history, both stocks and bonds have been highly sensitive to macro events, especially inflation readings, Misan Lim, head of hedge fund analysis at Cambridge Associates, told Reuters.

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Market developments have made 2022 a difficult year for managers in general. In addition, the prices have gone up a lot. Overall, it makes 2022 one of the most challenging years in a long time in terms of preserving values, he writes. financial times.

– This was one of the most significant years of wealth destruction in nearly 100 years, Renaud de Planta, head of Swiss asset management Pictet, tells the newspaper.

If you look at it simply, many investors may have lost more than a quarter of their inflation-adjusted values, de Planta says.