By Chuck Epstein
Consistent performance is a hallmark of good financial
management and the 2017
Preqin Global Hedge Fund Report has identified the most consistent
strategies and funds in seven categories over short- and longer-term time
frames, and also by region.
Based on results from January 2012 to December 2016, Preqin
tracked seven leading strategies: equity strategies, macro strategies, event-driven
strategies, credit strategies, relative value strategies, multi-strategies and commodity
trading advisors (CTAs).
The leading strategy was equity strategies, where all of the
top 10 most consistent top-performing funds were in the top decile across four
metrics: annualized return, annualized volatility, Sharpe ratio and Sortino
ratio. The top equity strategy fund followed a long-short approach. The top-performing
strategy category from January 2012 to December 2016 was equity bias/long-short,
followed by convertible arbitrage and equity value bias.
The 14-page 2017 Preqin report ranked funds according to performance,
region, 10 separate investment strategy categories for 2016, and from the longer-term
period of January 2012 to December 2016.
For 2016, the two top-performing funds were Tribeca Global
Natural Resources Fund - Class A Tribeca Investment Partners Long/Short Equity Australia,
which delivered a net return of 148.65%, followed by the Montreux Natural
Resources Fund - Class A (USD) Montreux Capital Management Commodities, Switzerland,
which returned 141.68%. (All returns are reported net of fees and expenses.)
For the longer period, the top two funds were the Passage to
India Opportunity Fund (Cayman) - A Shares Arcstone Capital Long Bias,
Value-Oriented, located in Mauritius that returned 44.84%, followed by the Japan
Synthetic Warrant Fund - JPY Class Stratton Street Capital Convertible
Arbitrage, based in the UK, which returned 36.41%.
By region, the top-performing North American fund was the Front
Street Canadian Energy Resource Fund - Series F Front Street Capital Long/Short
Equity Canada, which returned 132.50% in 2016. From Europe, the Montreux
Natural Resources Fund - Class A (USD) Montreux Capital Management Commodities based
in Switzerland returned 141.68% in 2016. From Asia-Pacific, the top fund was
the Tribeca Global Natural Resources Fund - Class A Tribeca Investment Partners
Long/Short Equity based in Australia, which returned 148.65%. Rounding out the
geography-based funds was the FAMA Brazil Cayman Feeder Fund FAMA Investimentos
Long Bias, Value-Oriented, headquartered in Brazil, which returned 87.04%. Four
funds from Brazil ranked in this last category, plus one fund from South
How the Funds Were
The methodology used to rank these strategy categories used
a percentile rank across four metrics: annualized return, annualized
volatility, Sharpe ratio and Sortino ratio. The funds then were graded in a
universe of hedge funds with matching strategy criteria and full performance
data up to December 2016 on Preqin's Hedge Fund Online database.
Each fund was then given an “average score” derived through
an average of the four percentile values used to determine fund consistency. Preqin
said that where a Sortino ratio could not be calculated due to the fund not
generating a negative return in the sample period, the fund received a
percentile score of 100 for its Sortino ratio metric.
All Not Well in the
Hedge Fund World
While the 2016 Preqin report researched the top global
funds, another new report from educational endowments and foundations found conducted
by the Commonfund and National Association of College and University Business
Officers (NACUBO) found that 2016 returns for all alternative strategies were
The poorest performer was commodities and managed futures,
at -7.7%, up from -17.7% in 2015, followed by energy and natural resources,
which returned -7.5% compared with -13.3% in 2015. Marketable alternative
strategies (hedge funds, absolute return, market neutral, long/short, 130/30,
event-driven and derivatives) returned -4.0% versus 2.7% in 2015, while distressed
debt returned -0.6% compared with 5.4% in 2015.
Of the alternative investment strategies in FY 2016, private
equity real estate (non-campus) provided the highest return, at 7.1%, down from
9.9% in 2015. Private equity (LBOs, mezzanine, M&A funds and international
private equity) posted a 4.5% return, down from 9.3% in 2015. The top return
strategy in 2015 was venture capital, posting a return of 15.1%, but this declined
in 2016 with a return of 1.5%.
The NACUBO data was gathered from 805 US colleges and
universities and were reported in the 2016
NACUBO-Commonfund Study of Endowments® (NCSE.)
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