Hedge Funds Had a Good Year, Just Not Good Enough

Keep it on the shelf for now.

Photographer: Bryan Bedder/Getty Images

Attention hedge-fund investors: I have some good news for you. I also have some not so good news.

The good news is that 2017 saw hedge-fund managers generate the best annual returns in four years. According to a recent report from Hedge Fund Research, funds gained 8.5 percent in 2017. On an asset-weighted basis, the gains were 6.5 percent, still the best annual performance since 2013. Profits for the managers and general partners were also at four-year highs.

The not so good news? For investors (or limited partners), these funds on average are still lagging behind broader indexes. To cite just one example, the Standard & Poor's 500 Index had a total return of 21.8 percent last year — more than double the average for hedge funds. And many overseas markets — especially for investors using U.S. dollars — did even better. The iShares MSCI Emerging Markets, for instance, had a return of 37.1 percent.