Hedge funds' performance falls 6% in the first half of 2022 on market volatility

Hedge funds posted a negative performance in June, bringing losses this year to almost 6 per cent, as volatility across markets accelerated, a report by hedge fund data provider HFR showed on Friday.

The fund-weighted composite index fell 3.08 per cent last month. All four main hedge fund categories tracked by HFR — equity, event-driven, macro and relative value — posted losses in June.

"Powerful risk off trends accelerated in June driving extreme financial market volatility with hedge funds trading through a wide range of risks including not only generational inflation, increasing interest rates, the continuation of the Russia/Ukraine war and record energy price increases, but also the increased likelihood of a consumer-led US economic recession," Kenneth Heinz, president of HFR, said.

Equity hedge funds, mainly those invested in growth stocks, whose valuations rely more heavily on future cash flows, have been the hardest hit by market volatility. They went down 12.3 per cent in the first half of the year, but outperformed the S&P 500, which fell roughly 20 per cent.

Macro hedge funds, however, were still in positive territory for the first half of the year, up 8.98 per cent, although they fell 0.42 per cent last month. Macro managers trade a broad range of assets, such as bonds, currencies, rates, stocks and commodities.

Despite a bumpy road last month, some macro managers were able to post double-digit gains for the year. Rokos Capital Management's macro fund was down 4 per cent in June, but its performance this year is still positive by 12 per cent, two sources said.

AQR Capital Management told investors its global macro strategy fund rose about 23.1 per cent through June, as it benefited from an environment of surging inflation and tightening monetary policy, sources said.

Bridgewater Associates was up 32.2 per cent in the first half of the year, although it faced some losses in trading of inflation-linked bonds and emerging markets currencies.

HFR said hedge fund performance has diverged a lot this year. Funds in the top decile of the so-called HFRI Fund Weighted Composite Index gained 34.6 per cent on average, while the bottom decile fell 32.2 per cent.

Gains, however, were limited to 37 per cent of the funds, HFR added.