Hedge funds trailed the Standard & Poor’s 500 Index for the fifth straight year as U.S. markets rallied to record levels.
Hedge funds returned an average of 7.4 percent in 2013, after a gain of less than 0.1 percent in December, according to the Bloomberg Hedge Funds Aggregate Index. The measure is weighted by market capitalization and tracks 2,257 funds, 1,264 of which have reported returns for December. It is down 1.8 percent from its July 2007 peak.
Funds lagged behind the S&P 500 by 23 percentage points last year, the most since 2005, as the U.S. benchmark surged 30 percent for its best performance since 1997. Stocks rallied last year amid gains in consumer confidence and a housing rebound in the world’s biggest economy. Hedge funds fell short of investor expectations as clients targeted net returns of 9.2 percent from their investments in 2013, according to Goldman Sachs Group Inc. survey.
“Hedge funds are always going to underperform the S&P 500 in a year like this,” said Jay Rogers, president of Irvine, California-based Alpha Strategies Investment Consulting Inc., which advises hedge-fund clients and managers. “Hedge-fund managers, if they’re doing what they should be doing, are hedging. Anyone who had any kind of short position last year had bad performance.”
Multistrategy hedge funds increased 6.8 percent last year and 0.9 percent in December, according to data compiled by Bloomberg. Macro managers fell 2.2 percent in 2013 after rising 0.9 percent last month. Long-short equity funds, which bet on rising and falling stocks, rose 11 percent last year after posting a 1.1 percent December gain.
Hedge funds last beat U.S. stocks in 2008, when they lost a record 19 percent, according to data compiled by Bloomberg, and the S&P 500 declined 37 percent. They outperformed the index by the most when they returned 31 percent in 1993, according to Hedge Fund Research Inc., compared with a 10 percent increase for the S&P.
Funds run by Paulson & Co., Elliott Management Corp. and Bridgewater Associates LP posted yearly gains, while BlueCrest Capital Management LLP’s BlueTrend strategy fell. Long-short equity and multistrategy managers reported increases in 2013 and macro funds, which bet on broad macroeconomic themes, lost.
Paulson & Co., the $20 billion New York-based hedge-fund firm run by billionaire John Paulson, posted a 31 percent gain last year in its Paulson Partners Enhanced Fund, a merger strategy that uses leverage to amplify returns, according to a person familiar with the matter. The fund climbed 2.6 percent in December. The unlevered Paulson Partners Fund increased 18 percent in 2013 after gaining 2.3 percent last month.
The firm’s Recovery Fund, its best-performing strategy last year, climbed 63 percent in 2013 after gaining 5 percent last month, the person said. Paulson’s Credit Opportunities Fund advanced 22 percent last year after returning 1.5 percent in December.
The event-driven Advantage Plus Fund, which uses leverage and invests in companies undergoing corporate changes such as bankruptcies, restructurings and spinoffs, rose 32 percent last year after climbing 3.3 percent in December, according to the person. The Advantage Fund, a similar strategy, gained 34 percent in 2013 after rising 2.7 percent last month.
Elliott International rose 12 percent in 2013 after gaining 0.9 percent in December, according to a performance update obtained by Bloomberg News. Elliott, with $23.9 billion in assets, is run by Paul Singer.
Bridgewater, the $150 billion firm run by Ray Dalio, rose 5.3 percent in 2013 in its Pure Alpha II fund after falling 0.8 percent in December, according to a person familiar with the matter.
BlueTrend, BlueCrest’s computer-driven hedge fund, fell 3.1 percent in December and declined 12 percent last year, according to a performance report obtained by Bloomberg News. BlueCrest was founded by Michael Platt.
Renaissance Technologies LLC, the $25 billion investment firm founded by Jim Simons, posted an 18 percent gain last year after remaining unchanged in December in its Renaissance Institutional Equities Fund, according to a person familiar with the matter.
MKP Capital Management LLC, the $8.5 billion global macro and credit hedge-fund firm, gained 11 percent in 2013 after rising 0.9 percent in December in its $2.4 billion MKP Credit fund, managed by Nilam Patel and a team, according to a person familiar with the matter. MKP Opportunity, a $4.8 billion global macro fund run by Patrick McMahon and a team, climbed 7.1 percent in 2013 after increasing 1.1 percent last month, the person said.
Hutchin Hill Capital LP, the $1 billion hedge fund founded by Neil Chriss, returned 19 percent last year after gaining 2.4 percent in December in its Hutchin Hill Diversified Alpha Master Fund, according to a person familiar with the matter.
Moore Capital Management LP, the $12.1 billion hedge-fund firm run by Louis Moore Bacon, climbed 15 percent in 2013 through Dec. 19 after falling 0.7 percent last month through the same period in its Moore Global Investments fund, according to a person familiar with the matter. The Moore Macro Managers fund increased 13 percent in the year and 0.4 percent in the month through Dec. 19.
Spokesmen for the funds declined to comment on the returns.