Measuring Hedge Fund Performance: Investors Weigh In Infographic

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Investors in hedge funds look to those allocations to fulfill a number of objectives for their portfolios, according to new data from Preqin. MFA used those data to illustrate a number of important …

Investors in hedge funds look to those allocations to fulfill a number of objectives for their portfolios, according to new data from Preqin. MFA used those data to illustrate a number of important points on how investors measure hedge fund performance in a new infographic.

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  • 1. JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Institutional investors’ top objectives for hedge fund allocations How do investors measure hedge fund performance? 65%of the hedge fund industry’s assets under management are from institutional investors. • RISK-ADJUSTED RETURNS THAT ARE NOT CORRELATED TO EQUITY MARKETS • TO REDUCE VOLATILITY WITHIN A PORTFOLIO • TO MITIGATE RISKS IN OTHER AREAS OF THEIR INVESTMENT PORTFOLIO CORPORATE AND PUBLIC PENSION PLANS UNIVERSITY ENDOWMENTS CHARITABLE FOUNDATIONS MEASURING HEDGE FUND PERFORMANCE Investors Weigh In I N S T I T U T I O N A L I N V E S T O R S I N C L U D E : 67% OF INSTITUTIONAL INVESTORS SEEK ANNUALIZED HEDGE FUND RETURNS BETWEEN 4%-6% 80%believe that their portfolio risk would increase if hedge funds were removed from their portfolios. I N F A C T Each hedge fund employs a unique strategy and trading style. Similarly, each investor partners with a hedge fund to achieve a unique goal within their investment portfolio. BUT, THE MAJORITY OF INVESTORS VIEW THESE BROADER COMPARISONS AS IRRELEVANT, DEVELOPING SEPARATE, MORE ACCURATE MEASUREMENTS TO DETERMINE IF HEDGE FUNDS ARE MEETING THEIR GOALS. 36% 29% of investors use separate benchmarks to measure separate hedge fund strategies use a single benchmark to measure their entire hedge fund portfolio 24%of investors believe the S&P 500 and other public indices are no longer relevant to hedge fund performance OBSERVERS OUTSIDE THE INDUSTRY FREQUENTLY COMPARE HEDGE FUND PERFORMANCE TO BROADER, UNRELATED MEASUREMENTS LIKE THE PERFORMANCE OF THE S&P 500 INDEX. How do Hedge Funds Size Up? OF INSTITUTIONAL INVESTORS FEEL THAT OVER THE PAST 12 MONTHS THEIR HEDGE FUND ALLOCATION RETURN EXPECTATIONS HAVE BEEN MET OR EXCEEDED. OF INSTITUTIONAL INVESTORS PLAN TO MAINTAIN OR GROW THEIR HEDGE FUND ALLOCATIONS OVER THE NEXT 12 MONTHS. visit managedfunds.org @MFAUpdates Data source: Preqin Special Report: The Real Value of Hedge Fund Investment, June 2014