Despite GameStop and Archegos Incidents, Hedge Fund Returns Reach Highest in 21 Years

[Image source= AP Yonhap News]

[Asia Economy Reporter Park Byung-hee] Despite consecutive incidents such as GameStop and Archegos Capital, hedge fund returns in the first quarter of this year recorded the highest level in 21 years, major foreign media reported on the 15th (local time).

According to financial information company Eurekahedge, global hedge fund returns in the first quarter of this year reached 4.8%, the highest return since 2006. Hedge Fund Research reported the highest return since 2000 at 6.1%. This is a complete turnaround from the 11.6% loss recorded in the first quarter of last year.

In January this year, it was reported that famous hedge fund managers suffered losses of tens of billions of dollars due to the GameStop incident. At the end of last month, Archegos Capital, managed by Korean-American hedge fund manager Bill Hwang, also recorded massive losses and received a margin call (additional collateral demand).

Despite consecutive setbacks, hedge funds achieved high returns because the stock market index rose sharply amid clear winners and losers among individual stocks.

The investment strategy commonly employed by hedge funds is long-short. This involves buying undervalued stocks (Long) and short-selling overvalued stocks (Short).

With distinct divergence among individual stocks, the long-short strategy proved effective. In the first quarter of this year, e-commerce companies like Coupang, Bitcoin, and electric vehicle-related stocks attracted attention.

Maverick Capital, a hedge fund that held Coupang for a long time, posted a 36% return in the first quarter.

Aaron Smith, founder of Pecora Capital, said, "In the past decade, buying and holding indices was the best investment method, but now the market environment is favorable for active investment strategies."

Hedge fund returns in the first quarter of this year were similar to market returns. The New York Stock Exchange's Standard & Poor's (S&P) 500 index rose 5.77% in the first quarter, while the Morgan Stanley Capital International (MSCI) World Index increased by 4.92%.