Do hedge funds really bring home the bacon consistently? 

According to research sourced by Christophe Lee, chief executive of SHK Fund Management and chairman of the Alternative Investment Managers Association (Aima) in Hong Kong, the inference is that hedge funds are the industry's gold medalists over investment cycles or a long-term period.

The first chart below shows that global hedge funds as a group, as measured by the HFRI index, have outperformed S&P 500 in the past three, five and 10 years and since 1990.



"In all these periods, this outperformance was achieved with less than half the volatility of the S&P," says Lee. "So in plain English, hedge funds have performed better than equities, but with much less risk."

Although hedge funds have underperformed the S&P 500 in the past 12 months, this might be attributed to the huge ramp up in stock prices in the second half of 2009. The year-to-date -- to June 30 -- performance of the HFRI is -0.21% and for S&P 500 is -6.64%.

Therefore hedge funds have done a good job so far in preserving capital in what has been a very challenging investing environment, as evidenced by the feeble trading profits in the second-quarter results of the big banks.

"In Asia the numbers are equally compelling," says Lee. "Asian hedge funds have outperformed their global peers, as well as various equity indices, including the Hang Seng Index and MSCI Asia Pacific -- again, with significantly less volatility." (See graph below.)