The data underscores the dominance of a small group that has reduced the total number of hedge funds to its lowest level since 2009.
Don Steinbrugge, founder and chief executive officer of Agecroft Partners, said in the note that the more than 2,000 global institutional investors his firm has partnered with may have been wrong for 2023 by sticking with big hedge funds, even if it was the big firms that doing so outperformed last year.
The bigger a hedge fund manager is, the more difficult it is to trade in size and profit from parts of the market that are less price efficient.
Michael Oliver Weinberg, who previously worked at the Dutch pension fund APG and now teaches at Columbia Business School, agrees.
“Because some of these managers have experienced tremendous growth, it will be more difficult for them to generate the same level of performance as in the past.”
“Many of them have benefited from being smaller in size and being able to invest in more limited capacity-based businesses and markets, which they may now be too big to invest in,” he said.
Data compiled by Hedge Fund Research shows that, on average, hedge funds fell 4.1% last year through November.
The $100 billion AQR manager had several funds that finished 2022 with performance numbers over 30%, including its Managed Futures HV Fund, 50%. DE Shaw’s largest hedge fund ($60 billion) ended 2022 with a 24.7% return.
The $138 billion UK-based Man Group said on its website that its AHL Diversified program had performed 13.1% at the end of November 2022.
Hedge fund manager Millennium, with revenues of $59 billion, returned 9.8% on its fund International Ltd for the year, according to industry research.
Smaller managers were squeezed by lackluster spending and revenue last year, Steinbrugge said. The number of active hedge funds fell to 9,163 at the end of the third quarter, the lowest number since 2009, according to the HFR.
“As a result, we expect the closeout rate to continue to increase for small to medium-sized hedge funds,” Steinbrugge said.