World hedge funds face losses
Rising inflation, geopolitical conflicts, and other challenges in 2022 affected all markets. The financial sector also suffered, with investors seeing an increase in losses. According to an analysis by LCH Investments, hedge funds lost a total of $208 billion in the previous period. However, the major players in the top 20 managed to hold on, generating revenues of $22.4 billion. The return on invested funds after fees was 3.4%. Other funds suffered losses of 8.2%. According to analysts, 2022 was the worst year since 2018, the largest losses in the industry were recorded in crypto funds. Here, profitability was observed only for the first 3 months, after which the decline began. Equity funds were in second place in terms of losses.
In addition, analysts note that over the entire history of active operations since the 1950s, the sector has earned more than $1.4 trillion. And the top 20 accounts for 49% of total profits, they also own a share of 19% of total market assets.
Citadel had its best year in 2022, with record profits of $16 billion. The best period for the sector was 2021 when the top 20 earned a combined $65.4 billion. In total, funds were able to earn $176 billion, for a return of 5%. However, even at its best, the sector was unable to match the performance of the S&P 500 index. The largest funds in 2021 were able to provide their clients with a return on invested funds of 10.5%. At the same time, the performance of the leaders of the S&P 500 was 28.7%, and in this case, the paid dividends are taken into account.
LCH Investments experts note that the best results are achieved by those hedge funds that prefer to apply different investment strategies, try new approaches, and not limit themselves to one management method.
The comparison of the sector’s success with the S&P 500 is no coincidence. In 2007, the founder of Berkshire Hathaway expressed the idea that within 10 years, the returns of the S&P 500 would be higher than those of the funds, if the performance of the latter were measured against the fees charged to investors. The Protégé Partners fund then made a bet with Warren Buffett. The result was an 85.4% return for the index fund, despite the 2008 crisis. Protégé Partners reported a 22% return on its 5 portfolios, where the most effective direction was nearly 63%.
