The Preqin All-Strategies hedge fund benchmark posted returns of 7.40% in 2016, marking the best performance year for the industry since 2013 and more than tripling the gains made through 2015 (+2.03%).
Despite a volatile start to the year which caused some performance difficulties, hedge funds rebounded to post positive returns in nine of the final 10 months of the year. This strong period of performance for the asset class sees three-year annualized returns stand at 4.83%, while five-year annualized gains have reached 7.47%.
Event driven strategies hedge funds saw double-digit gains in 2016, returning 12.47% for the year. This marks a sharp contrast from the previous year, when event driven funds were the only leading strategy to suffer losses (-0.78%).
Overall, all leading hedge fund strategies posted positive returns across 2016, and only relative value funds saw their 2016 returns (+4.74%) fail to match 2015 performance (+5.65%).
According to Preqin’s size classifications, smaller hedge funds were able to generate the greatest returns in 2016. Emerging and small hedge funds saw gains of 8.18% and 6.40% respectively in 2016, while medium and large vehicles posted performance of 5.53% and 4.63%.
After making gains of 0.45% in 2015, North America-focused hedge funds returned 10.20% in 2016. Funds focused on Europe (+2.89%) and the Asia-Pacific region (+1.68%) struggled through the year, but strong gains in Latin America saw emerging markets funds return 9.96%.
Hedge funds following a discretionary trading methodology returned 7.51% in 2016, improving on 2.51% gains made in 2015. By contrast, systematic funds saw their annual performance fall from 5.46% in 2015 to 4.44% the following year.
“2016 showed that hedge funds were able to cast off performance struggles that hampered them in 2015, and they posted the best performance year for the industry since 2013,” says Amy Bensted, head of Hedge Fund products at Preqin.
“Fear over China’s economy in Q1, the Brexit vote at the end of Q2 and the US presidential election in Q4 drove the narrative in 2016; and although there were some high- profile losses, the associated volatility created opportunities for hedge funds to produce significant returns for investors. Looking ahead to 2017, the continued consequences of these geo-political events are likely to remain key determinants of industry performance,” Bensted said.