HEDGE FUNDS HAVE OUTPERFORMED STOCKS AND BONDS ON RISK-ADJUSTED BASIS
New research jointly conducted by Preqin, a leading alternative asset data provider, and the Alternative Investment Management Association (AIMA), the global representative of alternative investment managers, shows hedge funds have produced more consistent and steadier returns than equities or bonds over both the short and long term.
Preqin and AIMA looked at hedge fund performance relative to equities and bonds on a risk-adjusted basis over one, three, five, and ten-year periods. The two organizations used the Sharpe ratio1 to represent the risk-adjusted returns. The higher the ratio, the better the risk-adjusted returns. Hedge funds outperformed both stocks and bonds in all periods.
The analysis was based on the returns of more than 2,300 individual hedge funds that report to Preqin’s All-Strategies Hedge Fund Index, an equal-weighted benchmark.
1Sharpe Ratio: The risk-adjusted return as measured by the Sharpe ratio is calculated by subtracting the risk-free rate (typically the return on US treasury securities) from the fund or index performance (returns, net of fees) and dividing this by the fund or index’s volatility. The higher the ratio, the better the risk-adjusted return.