Hedge funds are expected to have their second-worst performance year on record

According to a report by The Financial Times, hedge funds are on track to have one of their poorest performing years ever since many managers failed to shield investors from sudden drops in the equity and bond markets.

HFR data show that hedge funds lost 5.6% on average in the first half of 2022, putting the sector on course for its second-worst year of returns since 1990 (the year HFR started keeping track of performance), second only to the losses seen during the 2008 global financial crisis.

According to HFR, long-short equity funds, which oversee over $1.2 trillion in assets, have been struck particularly hard, with average declines of 12% in the first half of the year. A projected increase of just 1% in July will fall far short of the global equity market's recovery of 7% from last month.

Despite posting double-digit gains each of the previous three years, 'tiger cub' Lee Ainslie's Maverick Capital lost 35% in the first half of the year, while fellow cubs Glen Kacher's Light Street lost more than 40% and Daniel Loeb's Third Point lost over 20%. In contrast, Skye Global, founded by former Third Point analyst Jamie Sterne, lost more than 35% of its value in the first half of the year after dropping 10.4% in June.

However, not all funds have suffered; some managers, such as Brevan Howard, with its emphasis on government bonds and currencies, as well as oil traders like Pierre Andurand and quant funds betting on market trends, have made significant gains this year, keeping average hedge fund returns well ahead of equity markets.