The year 2015 is one more for the dustbin of history and marks the second straight year of uninspiring hedge fund performance. If anything separates 2015’s performance from 2014’s, it is that 2015 was not a solo performance. The S&P 500, that vaunted faux yardstick of hedge fund performance, ended 2015 virtually flat and the Dow Jones Industrial Average suffered a similar fate. If misery does indeed love company, hedges funds are in their glory, having enjoyed greater companionship in 2015 than in the previous year.
In the faint light of a dawning 2016 there is little that can be discerned. Countless pencils are disgorging their entrails on the scratch sheets of the number-crunchers laboring over their year-end tallies. It will be weeks before the true extent of the carnage is confirmed but, we know it is appalling.
People and hedge funds are like snowflakes. But, just as closer examination reveals that no two persons are exactly alike, neither are any two hedge funds. That said, 2015 boasts factors that impacted all hedge funds to varying degrees.
Hedge funds betting heavily on an oil and natural gas recovery did not fare well, nor did those dabbling in the broader commodities market, which generally declined. Others were adversely affected by a stalling Chinese economy coupled with steep declines in Chinese markets.
On the domestic front, abnormally low intraday volatility and a pedestrian year for equities contributed little to hedge fund gains. Currencies became completely undone in the face of Fed rate hike uncertainties, unanticipated European Central Bank measures and, of course, currency manipulations from the Chinese to the Swiss.
Also, one can’t ignore concentrated bets in the health care sector that deeply wounded some funds.
With the New Year, particularly a new year following such abysmal hedge fund aggregate performance, will come the usual slings, stings and arrows pronouncing the long overdue death of the hedge fund industry. However, the S&P 500 will not be cited as the benchmark for hedge fund performance (it fared just as badly), instead, investors will be taunted about not having opted for treasuries, because treasury returns are relatively robust when compared to hedge fund results.
Long Live Hedge Funds
Despite all the negative press, the finger nail biting of financial media pundits and the one-sided melodramas of hedge fund closings, the fact is, hedge fund assets under management have continued to grow year-over-year, now topping $3 trillion.
While it is not in dispute that some hedge funds have shuttered operations, it is equally true that hedge fund starts have outpaced closings.
Just as the French once proclaimed, “Le Roi est mort, vive le Roi!” at the death of a king, it must be proclaimed in our time with respect to the hedge fund industry. The phrase was meant to reassure the French people that there would never be a time without a king. Today, it is also a valid sentiment for investors with respect to the hedge fund industry. There will never be a time without a hedge fund.