hedge funds

Hedge Fund Performance Is (Still) Improving! Everyone (Still) Doesn’t Care.

Earlier this month, we brought you “It’s Probably Too Late: Hedge Fund Performance ‘Improves,’ But Market’s Patience Is Gone.”

In it, we highlighted the fact that hedge funds’ risk-adjusted performance is actually improving. But we also noted that at this point, it probably doesn’t matter. The passive/active ship has sailed. That horse has left the barn. Every tired old adage about “too little, too late” applies.

The meteoric rise of ETFs has conspired with $13 trillion in central bank liquidity to all but relegate active management to the dustbin of history. You can’t expect people to pay exorbitant fees for you to underperform a benchmark that thanks to central bank largesse, isn’t allowed to decline. That’s magnified for hedge funds because … well … because “2 and 20” is about as far from a 10 basis point expense ratio as you can get.

Plus, it doesn’t help that hedge fund managers have an uncanny knack for showing up in the news coked out, driving drunk, or worse, making gigantic bets on things that go horribly wrong (ask Bill Ackman about the latter).

So it’s with that in mind that we present the following update to the BofAML analysis highlighted in the linked post above. Our conclusion is the same: it’s too fucking late.

Via BofAML

The risk-adjusted performance of hedge funds, measured by sharpe ratio, has improved further based on updates as of the end of March 2017. Hedge fund delivered sharpe ratio of 4.4 over the trailing 12 months, compared to 2.8 by the S&P 500 total return index. Distress Credit, Event Driven and Convertible Arbitrage lead.

Over the trailing three years or longer term, hedge funds also delivered better sharpe ratio of 0.89, compared to 0.78 by the S&P 500 price index (but still lags behind the S&P 500 total return index). Merger Arbitrage and Equity Market Neutral lead over the three year time horizon.


For those interested, here’s a complete performance table broken down by strategy:



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