Investors hoping that 2018 would have brought a change in fortunes for the hedge fund industry were likely disappointed. While there were some funds that generated outsized returns for the year—Bridgewater's Pure Alpha fund returned 14.6% over the course of 2018, for instance, per a report by Bloomberg, while Odey European topped the list with an astonishing 53% return—the industry overall continued to struggle. Unfortunately for many funds, this is nothing new, as the hedge fund sphere has offered lackluster performance for years, and at a cost that many investors are increasingly perceiving to be excessive as well. All told, the hedge fund industry declined by 4.1% on a fund-weighted basis, according to data by Hedge Fund Research. This marks the most significant loss for the hedge fund world in 7 years.
Below, we'll take a look at some of the worst-performing hedge funds in 2018. These funds are drawn from a variety of strategies and include both major players of the money management world as well as smaller firms. For comparison, the S&P 500 lost about 6.2% across 2018.
1. QIM's Quantitative Tactical Aggressive Fund
Performance in 2018: -42.1%
2. Atlantic Investment's Cambrian Fund
Performance in 2018: -35%
3. Greenlight Capital
Performance in 2018: -34%
Strategy: Long/Short Equity
QIM's Quantitative Tactical Aggressive Fund
Quantitative Investment Management has taken an all-or-nothing approach with its Tactical Aggressive Fund in recent years. Jaffray Woodriff's tactical fund posted a record return of 60% for 2017. However, 2018 was not nearly so kind, as the fund fell by about 25% in the month of February alone. QIM's fund utilizes algorithms to trade in both ETFs and stocks. This strategy has generally proved effective for the fund on a year-to-year basis; since inception in 2008, the fund posted a yearly loss just one time prior to 2018. However, the fund has proven unable to successfully navigate the extreme volatility brought about by both increasing interest rates as well as trade tensions between the U.S. and China.
Atlantic Investment's Cambrian Fund
Atlantic Investment Management has a track record of roughly three decades with annualized returns of about 16% overall. For an activist fund, Atlantic takes a non-confrontational approach, preferring instead to remain liquid. The fund has had a string of bad luck in recent years, however; in 2017, Atlantic underperformed the S&P 500 by returning about -10% for the year. Still, that pales in comparison with the fund's performance in 2018. Atlantic's leader, Alexander Roepers, has been a fierce proponent of Huntsman Corporation (HUN) and has made public pitches for the stock on multiple occasions in the last year. Nonetheless, HUN has proven to be less than popular among other members of the hedge fund industry. Perhaps part of the reason why Atlantic's Cambrian Fund performed so poorly in 2018 can be linked to HUN's dismal performance for the year as well: the stock fell by more than 42% last year.
Perhaps no hedge fund has made headlines more frequently in the past year than Greenlight Capital. The fund, led by billionare manager David Einhorn, posted its worst performance ever, losing 9% from its main fund in December alone. Greenlight's most sizable holdings—General Motors (GM), Brighthouse Financial (BHF), and others—struggled significantly in the last year, falling by as much as 47%. While Greenlight's performance for 2018 was notable for its losses, previous years have seen equally outsized successes. In 2009, for instance, the fund returned 32%. 2018 was the fund's worst performance since it posted losses of about 20% in 2015.
For many hedge fund managers, dismal losses throughout 2018 were made all the more painful by the seeming relative strength of the S&P 500 overall throughout much of the year. Indeed, those funds which made the list above had already posted losses before the S&P fell dramatically in the final weeks of the year. Perhaps the seeming bull market is, as some analysts suggest, hiding two decades of poor compounded returns figures. On the other hand, the hedge fund industry is known for making risky wagers. When these bets work out, hedge fund managers entice investors with exceptional returns. The worst-performing funds of 2018 offer a cautionary tale about what happens when these bets don't turn out as hoped.