Hedge fund performance mid-month - mixed

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There have been more news stories this month about the poor performance of hedge funds in the first quarter of 2016 and the fact that there are rumblings that investors will pull money from hedge funds. Hedge funds have to get their act together on performance, fees, and the value proposition. 

The first half of the month has seen some bright spots as measured by the HFR indices.  Directional hedge funds and those that generally  have more beta exposure did better. The market directional index posted the best performance doing even better than a stock index. The only style that showed a drag on performance was the equity market neutral which was down 114 bps. Almost all of the hedge fund styles beat the long bond. 

Now, it is not always a good idea to compare hedge fund returns over a short horizon against equity and bond benchmarks, but unfortunately, many decisions are based on relative performance. Except in very strong up markets, the expectation from many investors is that the cumulative alpha will allow for better risk adjusted performance versus a beta index. If there is no strong alpha value, investors think they are just paying high fees for lower beta. This is the investor mentality that has to be overcome by hedge funds. 

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