Hedge funds need a long-term view
Looking back over 20-year periods, hedge fund strategies have largely met investors' expectations, matching and outperforming global bonds and equities, respectively.
That's according to Mercer deputy chief investment officer Phil Graham, who noted that while recent performances of hedge funds have been lackluster and their strategies associated with high fees, annual returns have sat around 6 per cent – "pretty much in line with global bond markets" – and slightly ahead of equities.
"At the same time, the risk on hedge funds was about a third that of equities – a standard deviation of 6 per cent versus 15 per cent for global equities," he said.
According to Graham, the correlation of hedge funds with equities has been around 0.5 per cent.
"When you put that together in an optimisation, that's clearly a positive aspect in terms of an overall portfolio – it helps improve returns and lower risk," he added.
There has been a continued upward trend towards hedge funds as people come to terms with the fact that it has been a difficult investing environment for all sectors over the last 3-5 years, Graham said.
"Looking forward, there are potentially good opportunities for hedge funds to move across asset classes, which is where their value lies," he said.
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