Key Takeaways
- • The Eurekahedge Hedge Fund Index returned only 1.56 percent in 2015, marking the worst performance since 2011 when it fell 1.81 percent, versus a 4.64 percent gain in 2014.
- • Six in ten hedge funds posted losses in 2015, the highest proportion of underperforming funds since the 2011 downturn, reflecting widespread difficulty navigating volatile market conditions.
- • Billionaire investor Bill Ackman's Pershing Square hedge fund suffered a 20.5 percent loss in 2015, driven primarily by severe declines in its top holding, Valeant Pharmaceuticals, during the second half of the year.
- • Despite poor returns, the hedge fund industry grew assets under management by $110 billion during 2015, with investor flows accounting for more than half of this net inflow, signaling continued institutional capital allocation to alternatives despite performance headwinds.
- • Market turmoil stemmed from currency dislocations at the start of 2015, followed by steep commodity and oil price declines, emerging market weakness, and geopolitical/terrorism concerns culminating in the Federal Reserve's first interest rate increase in nearly a decade.
Summary
The hedge fund industry posted its worst annual performance in four years during 2015, according to data from Eurekahedge. The Eurekahedge Hedge Fund Index gained only 1.56 percent, representing a significant underperformance versus 2014's 4.64 percent return and matching the worst annual result since 2011, when the index fell 1.81 percent. This deterioration occurred amid challenging global market conditions, with the MSCI World Index declining 0.48 percent and the FTSE CNBC Global 300 index falling 2.70 percent for the year.
Performance distribution across the industry was notably skewed, with six in ten hedge funds posting outright losses—the highest proportion of losing funds since 2011. This broad-based underperformance reflected the year's multiple headwinds. According to Hedge Fund Research, 2015 began with major currency market dislocations, continued with steep declines in oil and energy commodities plus emerging market losses, and concluded with rising geopolitical and terrorism threats alongside the Federal Reserve's first interest rate increase in nearly a decade.
High-profile casualties included Pershing Square, the flagship fund of billionaire investor William Ackman, which suffered a 20.5 percent loss in 2015. The decline was primarily attributable to severe underperformance in Valeant Pharmaceuticals, one of the fund's largest holdings, which faced significant headwinds during the second half of the year. The Valeant position exemplified broader challenges facing active hedge fund managers in navigating sector-specific crises amid elevated market volatility.
Despite the weak returns, institutional capital continued flowing into hedge funds. Total assets under management in the industry grew by $110 billion during 2015, with investor flows accounting for more than half of this net inflow, suggesting that despite performance disappointments, institutional investors maintained conviction in alternative strategies as a diversification tool and risk management component of broader portfolios.
Performance distribution across the industry was notably skewed, with six in ten hedge funds posting outright losses—the highest proportion of losing funds since 2011. This broad-based underperformance reflected the year's multiple headwinds. According to Hedge Fund Research, 2015 began with major currency market dislocations, continued with steep declines in oil and energy commodities plus emerging market losses, and concluded with rising geopolitical and terrorism threats alongside the Federal Reserve's first interest rate increase in nearly a decade.
High-profile casualties included Pershing Square, the flagship fund of billionaire investor William Ackman, which suffered a 20.5 percent loss in 2015. The decline was primarily attributable to severe underperformance in Valeant Pharmaceuticals, one of the fund's largest holdings, which faced significant headwinds during the second half of the year. The Valeant position exemplified broader challenges facing active hedge fund managers in navigating sector-specific crises amid elevated market volatility.
Despite the weak returns, institutional capital continued flowing into hedge funds. Total assets under management in the industry grew by $110 billion during 2015, with investor flows accounting for more than half of this net inflow, suggesting that despite performance disappointments, institutional investors maintained conviction in alternative strategies as a diversification tool and risk management component of broader portfolios.
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