Hedge funds overall had a mixed year in 2022, with some benefiting from increased volatility to post sharp gains, while others were pulled lower by falling equity markets.
In 2022, markets were dominated by two key themes: geopolitical tensions, coupled with accelerating inflation and tighter central bank policies. This combination sent most asset prices lower and was particularly problematic for those hedge funds that tend to perform in line with various asset classes.
Equity, Event Driven and Relative Value hedge fund indices all finished in negative territory while Multi-Strategy Quant and Discretionary Macro benefited from the asset price dispersion.
The historic repricing across most major asset classes created a rich trading environment for various types of investment managers, such as those focused on Discretionary Macro and Systematic strategies. Bonds were by far the largest contributor to gains for Macro and CTAs/Systematic Macro, driven by short positioning across developed and emerging markets. This was followed by currencies and commodities, with long positions in the U.S. Dollar benefiting from a broad flight to quality and growing interest rate differentials.
Fundamental Macro strategies followed a similar path, making money from directional and relative value opportunities before reversing course slightly as the year drew to a close.
Systematic Cash Equity posted excellent returns across time horizons and regions. However, portfolio diversification proved important, as managers were forced to navigate rapidly changing market volatility as well as strategy crowding and liquidations.
Meanwhile, it was a challenging year for Relative Value strategies, however managers with minimal tail-risk were able to outperform. Fixed Income Arbitrage, in particular, did well as fund managers took advantage of mispricing opportunities between government bonds and related derivatives.
Against this backdrop, ADIA's Alternative Investments Department (AID) was able to provide diversified absolute returns to the total portfolio. Looking ahead, AID will maintain its focus on allocating to strategies with predominantly low beta, while continuing to strengthen partnerships with the industry’s best-in-class managers.
