Barclays has estimated hedge fund investor returns to be between 10% and 11% in 2024, based on a weighted average across investor types, including pension funds, family offices, and private banks. This performance aligns with Hedge Fund Research’s weighted composite index, which also rose 10% last year.
However, a traditional 60/40 portfolio, consisting of 60% stocks and 40% bonds, would have outperformed hedge funds during the same period. According to the Lazy Portfolio ETF site, such a portfolio—using the Vanguard Total Stock Market ETF (VTI) and Vanguard Total Bond Market ETF (BND)—would have delivered just under 15% in 2024.
Even over the past five years, including the challenging 2022 market when both stocks and bonds declined, the 60/40 strategy posted an average gain of 8%, compared to just over 7% for hedge funds, which lost 4% in 2022.
“The fact that a traditional 60/40 portfolio outperformed the average hedge fund in 2024 highlights an ongoing challenge for the industry: justifying its cost,” said Bruno Schneller, managing partner at Erlen Capital Management, a Swiss asset manager.
Schneller noted that while hedge funds market themselves as tools for diversification, downside protection, and alpha generation, their recent performance suggests they may struggle to consistently deliver on these promises, particularly in low-volatility environments.
He emphasized the importance of investors carefully considering whether the potential benefits—such as access to specialized strategies or uncorrelated returns—are worth the often higher costs compared to simpler, more cost-effective alternatives.
