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Despite a raging bull market in the U.S., the largest hedge funds in the world failed to beat the returns of the benchmark S&P 500 index in 2024.
The S&P 500 rose 23% last year, the second consecutive year in which the benchmark index gained more than 20%.
Yet despite strong market conditions, most actively managed hedge funds underperformed in 2024.
The largest hedge fund in the world, U.S.-based Bridgewater Associates, saw its flagship Pure Alpha fund gain 11% in 2024, less than half the S&P 500’s gain on the year.
Another leading hedge fund called Citadel, which is run by billionaire investor Ken Griffin, saw its flagship Wellington fund post a 15% gain in 2024.
The Millennium Management fund also returned 15% to investors last year, while British hedge fund Marshall Wace, which manages more than $70 billion U.S. of investor capital, returned 14% through its Eureka fund.
Investors who placed their money in a low-cost exchange-traded fund (ETF) that tracks the S&P 500 index would have enjoyed better returns in 2024 than from placing money with most hedge funds.
The underperformance comes even though hedge funds trade several different asset classes, including stocks, bonds and commodities, and rely on high-frequency trading and algorithms to generate returns.
Hedge funds also charge exorbitant fees despite their poor performance.
In the U.S., hedge funds often charge their clients two fees: a management fee that is generally 2% of assets under management and a performance fee that is 20% of a fund’s growth.
An ETF that tracks the S&P 500 or other stock index charges a tiny fraction of what hedge funds levy on their clients.
Most hedge funds are privately held and their own stocks do not trade on a public exchange.
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