Reuters – The collapse of volatility in recent years has hit hedge fund returns but its revival this year should mean that patient investors could at last see some reward for their faith.
However, performance isn’t guaranteed because while some strategies will benefit from rising volatility, which creates mispriced assets, others such as long/short equity will suffer.
Hedge funds returned on average around 7.5 percent in 2005, 9.5 percent in 2004 and about 15.5 percent in 2003.
What does the rise in volatility mean for average industry returns? Probably not very much because it is likely that the gainers will be to a large extent offset by the losers.
Volatility has jumped because of uncertainty about global economic growth prospects and worries about global security, fuelled by Israeli strikes in Lebanon.
Winners are likely to include relative value strategies such as equity market neutral, convertible bonds and fixed income players which buy and sell securities against each other.
