Hedge Funds Lagged in 2023, Compared to S&P and Nasdaq Gains
By: Hadassa Kalatizadeh
Famed hedge funds could not keep up with the fantastic returns paid to investors in 2023 by the S&P 500 and Nasdaq stock markets. As reported by the NY Post, the S&P soared 24% for the year, while the tech-heavy Nasdaq had one of its strongest years in the past two decades, jumping 43%. The Nasdaq gains were propelled by Artificial Intelligence companies like Nvidia, whose stock price gained about 228 percent year to year. Other popular tech giants also posted incredible gains including: Tesla’s stock jumped 101%, Amazon was up 81%, and Meta (Mark Zuckerberg’s Facebook) was up 194% in 2023, following big losses in the previous year.
In comparison, the major hedge funds lagged. Overall, the average gain for hedge funds in the year ending November was 4.35%, as per a fund-weighted index compiled by research firm HFR. Ken Griffin’s Citadel fared best of the elites in performance, with double digit gains, with the premier fund giving back 15.3% returns for the year, per Bloomberg. Other hedge funds performed worse. Steve Cohen’s Point72 Asset Management ended the year up 10.6%. Per the Post, Izzy Englander’s Millennium Management gained 10%, and D.E. Shaw’s flagship fund returned 9.6% gains for investors. Citadel and D.E. Shaw also have non-flagship funds, not considered premium, which closed the year with less returns. Citadel’s tactical trading fund gained 14.8%, its equities fund yielded 11.6%, and its fixed income fund returned 10.9%.
D.E. Shaw’s oculus fund returned just 7.8%, despite the market soar. Other funds included: Michael Gelband’s ExodusPoint which paid a 7.3% return, Veriton with returns of 8.2%, Lauren Capital with 5% gains. Hedge funds which posted disappointing returns included: Minnesota-based Walleye up 3.9%, Schonfeld Strategic Partners ended the year 3% up, and Balyasny gave back just 2.7%. An underdog fund, with little fame, Discovery Capital, surprised everyone banging out returns of 48%. Also, Chris Hohn’s TCI gained 33%, and Tiger Global Management made 28.5% gains in 2023, following a two-year losing streak, per Bloomberg.
Hedge funds, which charge posh clientele big bucks to outdo general market performance and thrive in market uncertainty, seemed to disappoint in 2023. The market volatility sure was there, with a war in the Middle East and Russia, regional bank collapses, and inflation, but it didn’t seem to help the money managers. Per the Post, the hedge funds had performed a lot better in 2022, benefiting from that volatility. The S&P had fallen roughly 20% and the Nasdaq lost 33% in 2022, but the hedge funds made bank. AQR had paid out 44%, Citadel’s flagship had returned 38% return. D.E. Shaw was up close to 25%, Millennium gained 12% and Point72 ended the year with 10% gains in 2022.
Hedge funds aim to beat benchmark returns while minimizing volatility. Varying results from year to year, and from fund to fund, however, has led investors to question now-and-then whether all the hype is worthwhile. Most hedge funds charge about 1.6% to 2% as a management fee, and they take a 20 percent cut on all returns. Also, big investment amounts can only be made in cash, whereas anyone can easily invest money in a major index and the gains are theirs to keep. Per CNBC, Miami-based Citadel is returning all of 2023′s $7 billion in profits to investors, and the hedge fund previously gave back an estimated $25 billion to investors since 2018.
