Key Takeaways
- • Long/short equity hedge funds delivered double-digit average returns in 2024, marking their strongest performance since 2020 and outperforming all other major hedge fund strategies for the first time in five years.
- • Technology-focused long/short funds led sector performance with returns of 25.7%, driven by sustained momentum in large US tech stocks, while finance-focused funds showed marked improvement from 2023.
- • Asia-focused strategies rebounded significantly in 2024 after underperformance in prior years, particularly Greater China-focused funds, while US-focused funds continued benefiting from strong American equity market strength.
- • Over a five-year period, long/short equity funds captured less than one-third of downside exposure during major stock market sell-offs and delivered superior risk-adjusted returns compared to world stocks on both three-year and five-year bases.
- • European long/short equity funds underperformed for the second consecutive year, representing a notable regional weakness amid otherwise broad-based strength in the strategy class.
Summary
Long/short equity hedge funds achieved a standout 2024, posting their most substantial returns since 2020 and reasserting themselves as the top-performing hedge fund strategy after a five-year period of relative weakness. Funds in this category delivered double-digit average returns while generating higher alpha and demonstrating materially stronger relative performance versus public equity markets compared to 2023, signaling improved stock-picking ability among managers.
Regional performance diverged sharply across major markets. Asia-focused long/short strategies posted a particularly welcome rebound following consecutive years of underperformance, with Greater China-focused funds returning to form. US-focused long/short funds continued their strong performance trajectory, benefiting directly from the strength of American equity markets. In sharp contrast, European long/short equity funds lagged for a second consecutive year, representing a persistent structural headwind in that region.
Sector concentration drove returns, with technology-focused long/short equity funds dominating 2024 performance at 25.7%, sustained by the continued momentum of large US technology stocks. Finance-focused long/short funds also demonstrated marked improvement relative to 2023, indicating broader sector diversification within strategy returns. This sectoral leadership reflects underlying market dynamics favoring mega-cap technology equities throughout the period.
Risk management emerged as a core differentiator for the strategy class. Over the past five years, long/short equity funds captured less than one-third of the downside during major stock market sell-offs driven by geopolitical turmoil, inflationary episodes, and central bank actions. On both three-year and five-year lookback periods, long/short equity funds delivered superior risk-adjusted returns compared to world stocks, with outperformance on an annualized basis over three years substantially attributable to downside protection during the 2022 market decline.
Regional performance diverged sharply across major markets. Asia-focused long/short strategies posted a particularly welcome rebound following consecutive years of underperformance, with Greater China-focused funds returning to form. US-focused long/short funds continued their strong performance trajectory, benefiting directly from the strength of American equity markets. In sharp contrast, European long/short equity funds lagged for a second consecutive year, representing a persistent structural headwind in that region.
Sector concentration drove returns, with technology-focused long/short equity funds dominating 2024 performance at 25.7%, sustained by the continued momentum of large US technology stocks. Finance-focused long/short funds also demonstrated marked improvement relative to 2023, indicating broader sector diversification within strategy returns. This sectoral leadership reflects underlying market dynamics favoring mega-cap technology equities throughout the period.
Risk management emerged as a core differentiator for the strategy class. Over the past five years, long/short equity funds captured less than one-third of the downside during major stock market sell-offs driven by geopolitical turmoil, inflationary episodes, and central bank actions. On both three-year and five-year lookback periods, long/short equity funds delivered superior risk-adjusted returns compared to world stocks, with outperformance on an annualized basis over three years substantially attributable to downside protection during the 2022 market decline.
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