The Surprisingly Sunny Outlook for Crypto Hedge Funds

Every epic tale needs a tragic hero, and one of the top candidates for that role in this century’s dramatic passage so far has to be the hedge fund manager. Toppled from their masters-of-the-universe pedestal in the early 2000s, they now eke out meager gains, dodge investor recriminations about fees and occasionally attempt to stay relevant by explaining to the rest of us where the current confusion is taking the global economy. True, there are some formidable brains and admirable initiatives among the former kings of finance. But so far, after a promising legacy and the occasional shining moment, this has not been their decade.

This week Eurekahedge, which monitors industry health through a series of hedge fund indexes, reported average performance for July of 2.6%, and a year-to-date return of 1.7%. This significantly underperformed the S&P 500 (+4.7% for the month), Nasdaq Composite (+5.3%), gold (+10.3%), bonds (the long bond TLT index is up 4.4%) and, of course, bitcoin (+22%). The underperformance year-to-date follows a similar pattern.

But here’s an interesting twist: The Eurekahedge Crypto-Currency Hedge Fund Index was up 21% in July, and 50% over the first seven months of 2020. That’s a nice performance. But aren’t hedge funds supposed to outperform the industry benchmark? The YTD performance of bitcoin to the end of July is 55% – in other words, the leading cryptocurrency by market cap outperformed crypto-focused hedge funds by five basis points, or 10%.

You’re reading Crypto Long & Short, a newsletter that looks closely at the forces driving cryptocurrency markets. Authored by CoinDesk’s head of research, Noelle Acheson, it goes out every Sunday and offers a recap of the week – with insights and analysis – from a professional investor’s point of view. You can subscribe here.

In hedge fund terms, that’s significant, not least because one of the main points of hedge funds is to take extra risk, get extra return and make…

Read More