- (Long-short equity) hedge funds added little alpha (after fee) since the Global Financial Crisis, after adjusting for its market and small-cap exposure. Hedge funds have around 0.5 market beta – remember to take that into account for asset allocation.
- Hedge funds are no better than active mutual funds in terms of adding alpha (adjusting for market and small-cap exposure). In other word, hedge fund is no better an investment style than active long-only funds.
- Hedge funds nowadays are increasingly like active mutual funds, and charging higher fees by deviating more from the market benchmark. Be aware of those hedge fund managers who were active long-only before.
- Two caveats: first, the research focuses on long-short equity hedge funds. The jury is still out for cross-asset strategies and fixed-income strategies.
- Second, the research is focused on the US market. Other markets may offer more alpha opportunities for fund managers.
- Link to the article: https://www.aqr.com/Insights/Perspectives/The-Hedgie-in-Winter