2023 Hedge Fund Report – A Year in Review - Citco (2024)

FAQs

2023 Hedge Fund Report – A Year in Review - Citco? ›

Citco said equity hedge fund strategies had a weighted average return of 21.91% for 2023, followed by fixed income arbitrage at 12.63% and multi-strategy at 12.56%. Overall, the weighted average return for funds was 14.66% was welcome news following the -7.02% return logged in a challenging 2022.

All hedge funds tracked by BNP Paribas returned an average of 7.66% in 2023, differing from the survey results released on Feb. 12. In 2022, these hedge funds returned an average of 0.42%, said a BNP spokesperson. However, survey respondents said their hedge fund portfolios returned an average of 1.1% in 2022.

$2.6 Billion

Griffin ranked third among the highest-earning hedge fund managers in 2023, and Citadel generated $8.1 billion for investors. Citadel has now made $74 billion for investors since its inception in 1990, more than any other hedge fund firm. It returned $7 billion to clients at the end of the year.

However, performance dispersion within the HFRI FWC increased in 4Q23, indicating varying returns among hedge fund constituents. The top decile of index constituents returned an average of 20.5%, while the bottom decile declined by an average of -9.0%.

When evaluating performance, it is important to consider the risks taken by the fund. A fund with the same returns as another but with much lower risk (as measured by standard deviation of returns), and all other things being equal, would be a preferable choice for an investor portfolio.

Let's just say it: despite all the headlines, twists and surprises along the way, 2023 was a great year for investors. The S&P 500 was the star at +23% (all returns are total returns in CAD).

Goldman, which has helped launch and finance thousands of hedge funds, said almost all newcomers survive their first year but that only 62% of all funds remain in business after five years.

Overall, the consensus is that hedge funds will continue to grow but will adapt to lower fees, greater use of technology, and increased access to retail investors.

The U.S. stock market performed extremely well in 2023 and for the 5-year period ended December 31, 2023. Stock market performance in 2023 was a reflection of the relatively strong U.S. economy. The S&P 500 index increased 24.31 percent, more than twice the long-run average return on U.S. large-cap stocks.

What is considered a good return for a hedge fund? ›

Based on recent data, the average annual return on investment for investors in a typical hedge fund is around 7.2%, with a Sharpe ratio of 0.86 and market correlation of 0.9. However, it's important to note that performance can vary significantly among different hedge funds.

The Sharpe Ratio helps rank and indicate the expected return compared to risk: Usually, any Sharpe ratio greater than 1.0 is considered acceptable to good by investors. A ratio higher than 2.0 is rated as very good. A ratio of 3.0 or higher is considered excellent.

Based on recent data, the average annual return on investment for investors in a typical hedge fund is around 7.2%, with a Sharpe ratio of 0.86 and market correlation of 0.9. However, it's important to note that performance can vary significantly among different hedge funds.

Using the Bloomberg US Treasury Index as the proxy, fixed income returns were 4.05% and equity returns were 26.29% in 2023, compared with -12.46% and -18.11%, respectively, in 2022 (Exhibits 5 & 6).

Broader U.S. stock indexes, like the Russell 3000, the FT Wilshire 5000 and the Dow Jones U.S. Total Stock Market Index, which include smaller stocks as well as the giants in the S&P 500, also had a total return of around 26 percent for 2023.

Best performing sectors

It may come as no surprise that the best performing sector of 2023 was Technology and Technology Innovation, with the average fund returning 32%*. The sector made a significant comeback from its position as the second worst-performing sector in 2022 (returning -27.5%**), to top of the charts.