Twelve years of data on EDHEC Alternative Indexes has been analysed for different hedge fund strategies to provide some perspective on their performance. The extraordinary events of 2008 were not without an impact on hedge fund returns. Funds of hedge funds lost 17% in 2008, posting their worst annual returns since we began keeping records in 1997. Hedge fund investments lost value across the board. Except for CTAs and Short Sellers, all strategies posted their worst losses in 2008.

Even after the impact of a calamitous year, half the strategies still post cumulative returns above 100% for the past ten years, that is, a compound annual return above 7%. Interestingly, Distressed Securities funds and Emerging Markets funds are the strategies that have the highest return over the past ten years, even though they were among the biggest losers, with returns of -19% and -30%, in 2008. On the other hand, Short Sellers have the lowest ten-year returns of all the strategies, even after returning 25% in 2008.

In 2008 investors were given a painful reminder that hedge funds are exposed to a variety of risk factors, such as credit risk, liquidity risk and several equity risk factors. Historical estimates of volatility and Value-at-Risk now suggest greater risk for hedge funds as risk measures have increased across strategies when taking into account the data for 2008.


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