The performance of hedge funds in times of market turmoil
- Following bumper years since the Covid pandemic, the Hedge Fund industry has finally recovered from its setback during the Great Financial Crisis, now managing over USD 5 trillion for the first time in history.
- While some funds seek high absolute returns, the majority of strategies emphasise their ability to improve a portfolio’s risk-adjusted return thanks to their low correlation with traditional risk assets.
- In this article, we examine the extent to which hedge funds are able to generate returns regardless of market conditions by analysing their returns during different volatility regimes.
- We find that most strategies still do well during periods of modestly elevated volatility but suffer losses during times of stress. Trend Following remains a notable exception but has its own weak spots.
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