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 Africa.
How the Funds Were Chosen
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 negative.
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.)
Also mentioned 2 paragraphs down using same language