An important part of the private banking and wealth management toolbox, hedge funds’ performance have waxed and waned in recent years.

Hedge funds’ assets under management rose in the second quarter of 2024 to an estimated $4.7 trillion, although the quarter-on-quarter rise of 0.11 per cent, or $5.3 billion, was less than the far larger figure – $186 billion – that funds added in the first three months of the year.

The figures, from Preqin, the research firm that tracks alternative assets, also showed that July was a month in which niche strategies, such as those focused on cryptocurrencies, set the highest gains. Crypto-linked strategies and insurance-linked strategies outperformed the overall hedge fund asset class.

An important part of the private banking and wealth management toolbox, hedge funds’ performance have waxed and waned in recent years. Hedge funds haven't always enjoyed strong returns – and some strategies have hit trouble, prompting pushback against their relatively high fees. However, despite certain naysayers such as Warren Buffett, they appear to be a fixture in the wealth management landscape.

Preqin’s All Hedge Fund Index rose 1.61 per cent in July 2024, only 17 basis points off the MSCI World Index, at 1.78 per cent – the closest gap between the two indices since July 2019. 

However, in a polarized month for hedge funds performance, falling metal prices lowered commodity prices (excluding energy) overall and so detracted from recent strong performance, while tech stocks’ price growth flattened in July, Preqin said. 

“The wider hedge funds universe is expected to see continued volatility as it moves into September. The Bank of Japan’s July 31 rate hike and its impact on the yen-funded carry trade is likely to be felt in the August hedge funds data. Further, some of the largest managers reduced major technology holdings as second-quarter filings began to be released, which could leave them on the outside should August’s rebound remain on track when the month-end data comes out,” Charles McGrath, AVP, Research Insights at Preqin, said.

Hedge funds that focus on cryptocurrencies have sometimes enjoyed stellar returns. See here.

Preqin’s All Hedge Funds Index rose 1.61 per cent in July, a rebound from June’s 0.28 per cent decline but trailing global public equities, as measured by the MSCI World Index (1.8 per cent), by a modest amount. While hedge funds can be expected to underperform in an up market, the 17-basis-point variance was the tightest gap between the two indices since July 2019.