Hedge Fund Outlook: Investor sentiment turns bullish for 2024 (2024)

FAQs

What is the outlook for hedge funds in 2024? ›

Hedge Funds (HF) are up 4.2% year-to-date as of March 2024, which compares well with diversified global allocations, including 40/60 Equity/Bond portfolios which are up around +2.2% and have higher volatility. HF performance year-to-date was led by CTAs, EM focused and L/S Equity both Directional and Neutral.

Hedge fund performance was generally positive in March; the average asset weighted hedge fund net return across all strategies was 2.06%. For a second month, all hedge fund strategy groups had positive average returns. Hedge fund performance dispersion was narrower than observed in February.

There are two basic reasons for investing in a hedge fund: to seek higher net returns (net of management and performance fees) and/or to seek diversification.

Some strategies, such as managed futures and short-only funds, typically have higher probabilities of failure given the risky nature of their business operations. High leverage is another factor that can lead to hedge fund failure when the market moves in an unfavorable direction.

Earnings Rebound

Analysts are projecting S&P 500 earnings growth will accelerate to 9.7% in the second quarter and S&P 500 companies will report an impressive 10.8% earnings growth for the full calendar year in 2024.

The Big Money bulls forecast that the Dow Jones industrials will end 2024 at about 41,231, 9% higher than current levels. Market optimists had a mean forecast of 5461 for the S&P 500 index and 17,143 for the Nasdaq —up 9% and 10%, respectively, from where the indexes were trading on May 1.

Overall, the consensus is that hedge funds will continue to grow but will adapt to lower fees, greater use of technology, and increased access to retail investors.

Goldman, which has helped launch and finance thousands of hedge funds, said almost all newcomers survive their first year but that only 62% of all funds remain in business after five years.

Hedge funds seem to rake in billions of dollars a year for their professional investment acumen and portfolio management across a range of strategies. Hedge funds make money as part of a fee structure paid by fund investors based on assets under management (AUM).

Why do rich people invest in hedge funds? ›

A wealthy individual who can afford to diversify into a hedge fund might be attracted to the high-performance reputation of its manager, the specific assets in which the fund is invested, or the unique strategy that it employs.

“Hedge funds can pose a risk to financial stability when they use excessive leverage, adopt highly speculative strategies, or have a strong correlation with other market participants.

1. Madoff Investment Scandal. Madoff admitted to his sons who worked at the firm that the asset management business was fraudulent and a big lie in 2008. 2 It is estimated the fraud was around $65 billion.

Tiger Global's Chase Coleman appears to be the biggest loser. Tiger Global's long/short equity hedge fund lost 56 percent, while its smaller long-only fund fell 67 percent during 2022, as Institutional Investor previously reported. Both funds are included in Sopher's calculations.

In 2024, we anticipate a further concentration of hedge fund flows, with a small percentage of managers likely attracting 90% of net assets within the industry. To succeed, it's insufficient merely to offer a high-quality product with a strong track record.

With the threat of recession growing, we examined hedge fund performance during recessionary periods over the last three decades, finding that they have demonstrably outperformed when stocks have declined.

One of the most profitable hedge funds of all times, Citadel generated $16 billion in profits for its investors in 2022, and earned $65.9 billion in net gains since 1990, making it the top-earning hedge fund ever.