These investment entities, which remain important parts of the private banking and wealth jigsaw puzzle, broadly gained in May.

Hedge funds gained in May as equities recovered the prior month’s decline, and as inflationary pressures remained elevated, but investors positioned for interest rate reductions in the second half of 2024, new figures show.

Led by directional equity hedge and event-driven strategies, the HFRI Fund Weighted Composite Index rose by 1.3 per cent in May, with additional positive contributions from relative value arbitrage strategies offsetting a decline in macro strategies, Chicago-headquartered Hedge Fund Research said. For the first five months of this year, the index is up more than 5 per cent.

(Equity hedge involves buying equity in some form, as an underlying investment, and then securing a hedge to potentially offset losses connected to market risk. With relative arbitrage, an investor invests in a pair of related securities, exploiting mis-pricings between the two.)

The HFRI Equity Hedge (Total) Index rose 2.5 per cent in May, reversing the April decline and marking the fifth gain for this index in the trailing seven months, posting its strongest monthly return since February, HFR said. 

Hedge funds haven't always enjoyed strong returns – and some strategies have hit trouble, prompting pushback against their relatively high fees. However, despite certain naysayers such as Warren Buffett, they appear to be a fixture in the wealth management landscape. At a briefing last week for journalists by Switzerland's Union Bancaire Privée, reporters heard how recent shifts in interest rates, for example, have been positive for macro funds. For merger arbitrage funds, however, conditions are challenging, given political/regulatory obstacles to M&A deals, Kier Boley, co-head and chief investment officer of UBP AIS, said.

“The hedge fund industry is in good health in terms of performance,” Boley said.

Gains and change
Elsewhere, HFR said its HFR Cryptocurrency Index surged 13.6 per cent in May; that index shows year-to-date performance of 38.04 per cent. The HFR Blockchain Composite Index is up 37.51 per cent. 

About 70 per cent of hedge funds produced positive performance in May.

Event-Driven strategies, which often focus on out-of-favour, deep value equity exposures and speculation on M&A situations, also advanced in May, driven by multi-strategy and distressed exposures. The HFRI Event-Driven (Total) Index gained 1.6 per cent for the month, led by the HFRI ED: Multi-Strategy Index, which jumped 2.35 per cent, and the HFRI ED: Distressed Index, which added 1.7 per cent for the month.

The HFRI Relative Value (Total) Index added an estimated 0.6 per cent for the month, increasing its year-to-date 2024 return to 3.3 per cent. 

Macro strategies posted mixed performance in May as interest rates and financial market volatility fell. The HFRI Macro (Total) Index fell 0.65 per cent in May, the first monthly decline since November 2023.