Hedge funds rebound in May - Equities and event-driven strategies lead gains amid inflation

Hedge funds experienced a positive month as equities rebounded from April's decline, inflation pressures stayed high, and investors anticipated interest rate cuts in late 2024. According to Hedge Fund Research (HFR), the HFRI Fund Weighted Composite Index rose 1.3% in May, led by directional equity hedge and event-driven strategies, with positive inputs from relative value arbitrage offsetting losses in macro strategies. The index has increased over 5% in the first five months of 2024.

Equity hedge strategies, involving investment in equities with protective hedges, and relative arbitrage, exploiting mispricings between related securities, saw gains. The HFRI Equity Hedge (Total) Index rose 2.5% in May, its strongest return since February, reversing April's decline and marking the fifth gain in seven months.

Despite mixed historical performance and criticisms over high fees, hedge funds remain integral to wealth management. At a recent briefing by Union Bancaire Privée, it was noted that interest rate changes have benefited macro funds, though merger arbitrage funds face challenges due to regulatory obstacles.

HFR reported that 70% of hedge funds had positive performance in May. The HFR Cryptocurrency Index surged 13.6%, and the HFR Blockchain Composite Index rose 37.51% year-to-date. Event-driven strategies, particularly multi-strategy and distressed exposures, advanced with the HFRI Event-Driven (Total) Index gaining 1.6%. The HFRI Relative Value (Total) Index increased 0.6%, reaching a 3.3% year-to-date return. Conversely, the HFRI Macro (Total) Index fell 0.65%, marking its first decline since November 2023.