Asset AllocationJanuary 6, 2015

Hedge Funds Confound Expectations in 2014

Where was the money made in the hedge fund sector last year?

Reported by Featured Author

Several hedge fund strategies surprised to the up and downside in 2014 despite conditions suggesting they should do otherwise, according to data from Lyxor.

Although conditions were perfect for event-driven strategies, as a group they lost 2.3% over the year, the asset manager said.

“Strategies with lower market directionality and/or with a quantitative bias should continue to do well in the quarters ahead.”—Lyxor“Event-driven disappointed,” the company said in a report on 2014 asset class performance, “despite the fact that conditions were in place to achieve a strong year, as mergers and acquisitions (M&A) and divesture activity were supportive.”

Totalling $3.5 trillion, M&A activity was up 47% year-on-year, according to Thomson Reuters. 2014 was the sector’s strongest year for deal-making since 2007, the data provider said.

Separately, CTAs outperformed expectations with an overall 18.2% return over the year. Lyxor put this down to the strategy largely ignoring “the views of the crowd”.

One strategy that went with the consensus view was long/short equity. Variable bias ended the year up 1.6%, while market neutral players saw funds up by 7.9%.

This momentum should continue into 2015, Lyxor said: “We believe these strategies with lower market directionality and/or with a quantitative bias should continue to do well in the quarters ahead.”