How did hedge fund do during the COVID19 scare? A simple way to analyze their performance is through a quick comparison for the first quarter of 2020. The numbers from Barclays Investment Bank suggest that their performance was consistent with past events like the Eurozone Crisis, the 2015-16 correction, and the 2018:4 periods. Hedge funds are not immune to market declines but will have a muted response. In this case, the MSCI world index declined 21.1% but the HFRX declined 8.2% or 39% of the equity decline. A similar comparison can be done for bear markets. Hedge funds offer lower volatility and market exposure. The numbers do not tell a story of absolute return but muted returns.
A quick survey look reported in May shows that investors have a desire for more long only equity, less fixed income and more balanced expected exposure in hedge funds and illiquid alternatives relative to last year.
These survey numbers are consistent with the market moves we have seen over the last two months. Hedging and diversification are out, and market exposure is in.
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