Aggregate hedge fund returns were down 4.25% for the year ended Dec. 31 for the HFRI Fund Weighted Composite index, showed a report from hedge fund data specialist HFR.
In contrast, the HFRI Fund Weighted Composite was up 10.2% in 2021.
The fund-weighted index's 2022 aggregate performance is the worst since 2018 when the index was down 4.75%, HFR's historical data showed.
The worst yearly performance of the fund-weighted composite since 1990 was -19% in 2008.
The HFRI Asset Weighted Composite index, which gives more weight to larger hedge funds, was slightly positive at 0.97% in December compared with 7.4% in 2021.
HFR's reporting of hedge fund returns in the year ended Dec. 31 showed that the HFRI Macro (Total) index was the only one of the four broad hedge fund indexes HFR maintains that had a positive aggregate return over the 12-month period, up 9.3% compared with 7.7%, as of Dec. 31, 2021.
Of HFR's other three broad hedge fund indexes, the HFRI Relative Value (Total) index was down 0.9% as of Dec. 31, compared with a 7.6% return in 2021; the return of the HFRI Event-Driven (Total) index was down 5% at year-end 2022 vs. a 12.4% return the prior year; and the return of the HFRI Equity Hedge Total index was down 10.4% in 2022 in contrast to an 11.7% return in 2021.
"Extending the powerful trends which have dominated 2022, hedge funds again navigated intense financial market volatility and declines in December," said Kenneth J. Heinz, president of HFR, noting that inversely correlated macro strategies and fixed income-based relative-value funds gained over the year ended Dec. 31, in the report.
He added that a dominant trend in 2022 was larger hedge funds exhibiting "strong, impressive, defensive outperformance, with much of this concentrated in macro and large credit multistrategy exposures."
As for 2023, Mr. Heinz said "macroeconomic and geopolitical risks remain at extreme levels, including dislocation risks associated with increasing interest rates to slow generational inflation while at the same time, risks associated with broad-based economic slowing and the ongoing Russian war in Ukraine."
Against this backdrop, Mr. Heinz said "institutional investors are likely to increase exposure to (hedge) funds which have successfully navigated this extreme volatility, in 2022, targeting the twin portfolio objectives of continued capital preservation as well as participation in opportunities created by this volatility and dislocations across asset classes."
As of Sept. 30, HFR reported that industrywide hedge fund assets totaled $3.78 trillion.
HFR has yet to release assets under management by hedge funds as of Dec. 31.