(January 10, 2013) — Amid fears to avert the US fiscal cliff, hedge funds inched higher in 2012.
The winning hedge fund strategy for the year: Fixed income-based relative value arbitrage, with the HFRI Relative Value Index gaining 10%, inclusive of a gain of 0.7% for December.
The fastest-growing hedge fund strategy during the month of December: event-driven. Activist and distressed exposures led event driven sub-strategy contributions in 2012, with gains of 20.2% and 10.4%, respectively, the firm showed.
In total, the HFRI Fund Weighted Composite index returned 6.16% in calendar year 2012, compared to -5.25% in 2011.
The HFRI Equity Hedge Index gained 1.6% in December, ending 2012 with gains in six of the last seven months, and bringing fiscal year performance to +7.4%. “With the conclusion of 2012, the hedge fund industry has evolved and advanced for four years since the financial crisis in December 2008, with powerful trends continuing to define and shape the significance and influence of the hedge fund industry on financial markets, asset pricing and investors in 2013,” says Kenneth J Heinz, president of HFR. “The hedge fund industry is now larger, more sophisticated, more accessible, more global, more diversified, more transparent, more efficient and more capable of meeting the requirements of institutional and individual investors in 2013.”
Earlier this month, another report shed light on hedge fund growth. Pension funds will continue to be the largest contributor to growth in the hedge fund industry worldwide in 2013, according to predictions by Agecroft Partners, a third-party marketing firm. The goal among pensions? Enhance returns and reduce downside volatility in portfolios in order to help manage massive unfunded liabilities. As a result of declining interest rates, forward-looking return assumptions are currently around 3% for fixed income portfolios managed against the Barclays Aggregate Bond Index which currently represents approximately 30% of pension funds’ total assets, Agecroft noted. “With current actuarial return assumptions averaging approximately 7.5%, we will see pension funds shift more assets from fixed income into hedge funds as long as interest rates stay low.”
Some in the industry, however, assert that the firm’s predictions may be slightly farfetched. “It seems a little more ambitious than what may actually occur,” David Gold, senior consultant of manager research at Towers Watson, told aiCIO. “Pension funds in the US will definitely continue allocating to hedge funds, but a lot of those searches will be replacement searches–or a recycling of capital. So, net new growth might be more limited.”
Related article: Hedge Fund Predictions in 2013