Hedge funds had best first half performance since 2021: Goldman

Hedge funds had a stellar first half in 2024, marking their best performance since the same period of 2021, Goldman Sachs said in a recent report.

Despite challenging market conditions and ongoing macroeconomic uncertainties, hedge funds delivered an average return of 5.7% during the first half of this year, which is only slightly below the full-year return of 7.1% achieved in 2023.

Goldman's survey of 314 hedge fund allocators, which manage over $1.2 trillion in assets, revealed a marked improvement in sentiment towards hedge funds.

For the first time in several years, hedge funds have become the most sought-after asset class. That shift in sentiment is partly driven by the robust returns seen in the first half of the year and a potential inflection in the direction of fund flows observed in the second quarter.

"Allocator sentiment towards hedge funds has dramatically improved," the report stated, highlighting the renewed interest from institutional investors, private capital, and funds of funds.

Despite the positive sentiment, the flows picture for hedge funds remains challenging, although there is hope for an improving environment in the latter half of the year.

The report emphasized that the positive performance was widespread across various hedge fund strategies.

Fundamental strategies, particularly equity long/short (L/S), led the way with an average return of 7.6%. This was driven by both a beta tailwind and strong alpha contributions. Quantitative strategies also performed well, with a return of 7.0%, continuing their momentum from 2023.

Goldman also highlighted the balanced alpha generation between the long and short sides of managers' books, a rare occurrence in rising market environments.

Family offices, endowments, foundations, and sovereign wealth funds saw the strongest hedge fund performance, largely due to their greater exposure to directional and growth-oriented equity L/S strategies. Allocators reported an average gain of 6.7% in their hedge fund portfolios between January and June, nearly double the 3.5% return reported for the same period in 2023.

"The percentage of investors who said their portfolios performed better than expected rebounded to the highest level since 2020, at 26%, although it remained significantly below the all-time high of that year (57%).”

Looking ahead, the net proportion of allocators planning to increase their exposure to hedge funds has reached the highest level on record. Hedge funds are now the most popular asset class, with 41% of allocators intending to increase their exposure, up from 31% at the start of the year.

On the flip side, just 9% plan to reduce their hedge fund exposure, down from 15% at the start of 2024.