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The Value of the Hedge Fund Industry to Investors, Markets and the Broader Economy: Research commissioned by AIMA and KPMG

Reveals how hedge funds significantly outperformed traditional asset classes such as equities, bonds and commodities from 1994-2011


Hedge funds significantly outperformed the main asset classes such as equities, bonds and commodities between 1994 and 2011. This was the main finding of a study that AIMA and KPMG commissioned in 2012 from the Centre for Hedge Fund Research at Imperial College in London. The research, the most comprehensive of its kind to date, found that, per annum, hedge funds returned 9.07% on average after fees over that 17-year period, compared to 7.18% for global stocks,6.25% for global bonds and 7.27% for global commodities (see Figure 3).

The research found that hedge funds achieved these returns with considerably lower risk volatility as measured by Valueat- Risk (VaR) than either stocks or commodities and with similar volatility to bonds, an asset class considered the least risky and volatile.

In stressing the industry’s value to investors, the research also confirmed that the large majority of the funds’ investment returns went to the investor, rather than the manager.

And the research demonstrated that hedge funds were significant generators of “alpha”, creating an average of 4.19% per year from 1994-2011.

Portfolios including hedge funds were found to have outperformed those comprising only equities and bonds. The study showed that such a portfolio outperformed a conventional portfolio that invested 60% in stocks and 40% in bonds. The returns of the portfolio with an allocation to hedge funds also yielded a significantly higher Sharpe ratio (which characterises how well the return of an asset compensates the investor for the risk taken) with lower “tail risk” (the risk of extreme fluctuation). These findings looked ahead to a future AIMA publication, Beyond 60/40.

The paper also contained a review of much of the academic research into the hedge fund industry and highlighted the positive contributions that the industry has made to financial markets and the broader economy.



Figure 3

The value of the hedge fund industry

“Hedge funds provide economically important risk adjusted performance that provides investors with diversification benefits even during the most difficult macroeconomic environments”

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