Print this chapterPrint this chapter

Hedge Fund Performance During and After the Financial Crisis

(i) Persistent Positive Returns

As stated in previous sections, persistence in performance is an attribute sought after by investors. Here, all eleven strategies were analysed for persistence in positive performance, and the results are presented in Table 9. The strategies are ranked in ascending order, in the column titled NETPP (Net persistent positive performance), following the procedure explained in the section on methodology.

Table 9. Net persistent positive performance.

Period Whole Period During Crisis After Crisis
Strategy/Ranks NETPP Pers Rank Perf Rank NETPP Pers Rank Perf Rank NETPP Pers Rank Perf Rank
Convertible Arbitrage 23 9 9 0 6 4 23 9 9
Short Bias −6 1 1 0 6 11 −6 1 1
Emerging Markets 8 4 7 0 6 5 8 4 7
Equity Market Neutral 12 7 2 4 10 2 8 4 3
Event Driven 9 5 5 −1 2 8 10 6 5
Fixed Income Arbitrage 47 11 6 −1 2 3 48 11 8
Global Macro 14 8 11 4 10 9 10 6 4
Long/Short Equity 3 3 8 −2 1 7 5 3 6
Managed Futures 2 2 3 2 9 10 0 2 2
Multi-Strategy 28 10 10 −1 2 6 29 10 10
S&P 500 9 5 4 −1 2 1 10 6 11
Rank Correlation     0.5682     0.1545     0.7364 *

Fixed Income Arbitrage had the highest rank for persistent performance rate with Multi Strategy being the next, over the whole period; in the crisis period, Global Macro and Equity Market Neutral Managed Futures had the highest rank; in the after-crisis period, Fixed Income Arbitrage had the highest rank, with Multi Strategy being the next. In the columns titled Performance, the strategies were ranked in ascending order, based on the end value of $100 invested at the beginning of the period. In the last row, the rank correlation coefficient was computed and showed a significant positive correlation between persistence in performance and total performance, only in the after-crisis period. Moreover, over the whole period, Global Macro, Multi Strategy, Fixed Income Arbitrage and Convertible Arbitrage had the highest net persistent positive performance (NETPP) and were well above the S and P 500, on this measure.


(ii) Persistent Returns above S&P500

In Table 10, the net persistent positive performance over the S&P500 is presented. Over a quarterly horizon, none of the strategies had a positive figure for net persistent performance (NETPOS), over the S&P500, either over the whole period or in the after-crisis period; though all strategies had a net persistent performance over the S&P500, during the crisis period.

Table 10. Net persistent positive performance over the S&P 500.

Period Whole Period During Crisis After Crisis
Strategy/Ranks NETPOS Pers Rank Perf Rank NETPOS Pers Rank Perf rank NETPOS Pers Rank Perf Rank
Convertible Arbitrage −2 6 8 0 1 3 −2 8 9
Short Bias −6 2 1 0 1 10 −6 3 1
Emerging Markets −1 8 6 3 9 4 −4 7 7
Equity Market Neutral −7 1 2 1 3 1 −8 1 3
Event Driven −3 4 4 2 6 7 −5 4 5
Fixed Income Arbitrage −1 8 5 1 3 2 −2 8 8
Global Macro −2 6 10 3 9 8 −5 4 4
Long/Short Equity −3 4 7 2 6 6 −5 4 6
Managed Futures −6 2 3 2 6 9 −8 1 2
Multi-Strategy −1 8 9 1 3 5 −2 8 10
Rank Correlation     0.721     0.212     0.8848

The analysis showed that rankings on persistence in performance for performance over the benchmark S&P500, had a significant correlation with overall performance of that strategy in the after-crisis period (0.885), near significant correlation (0.721) over the whole period, but not in the crisis period (0.212).