Wobbly hedge fund performance of late – specifically single-digit returns of the past couple of the years – is not due to lower-quality HF managers but adverse market factors, according to French business school Edhec. “The importance given to alpha as regards the level of hedge fund performance is strongly overstated,” write researchers Walter Gehin and Mathieu Vaissie of the Edhec Risk and Asset Management Research Centre. Exposure to market risk, say the researchers, is responsible for 99.61% of how well the average HF manager performs, while the alpha search is responsible for just 3.72% of total performance. What’s more, according to the study, attempts by hedgies to time moves in an out of market risks actually dragged down performance by 3.33%. The report, which largely supports hedge funds as worthy investments, says that market capacity or dilution of talent had little impact on a manager’s ability to product top returns. “The poor performance achieved by hedge fund strategies in the recent past might be due to an adverse environment,” according to the study. “There is no clear evidence of a decline in the average quality of hedge fund managers.”
