Liquid alternatives beat equities, bonds and hedge funds in 2022 – despite outflows

After an initial increase at the midpoint of the year, the range of fund concepts on offer grew further to 767 funds (+5.9%). This growth was primarily driven by alternative concepts at +8.6%, while the number of absolute return concepts remained virtually unchanged from 2021 (+1.5%). Overall, 31 new funds were launched. The universe also grew as new funds were added to the Refinitiv database after receiving their licences for distribution in Germany, for example. Based on the number of concepts, alternative strategies asserted their dominance further with 493 funds (64%), pulling further ahead of absolute return concepts with 274 funds (36%).

The picture has hardly changed from our 2021 analysis, with large funds still dominating the market. The top 5% of funds manage more than twice as much capital as the bottom 80%. As a result, the market continues to be dominated by a few large providers. This trend is even more pronounced when the market is divided into its upper and lower halves, with the top 50% of funds accounting for 94.5% of capital in the segment while the lower half of funds manage barely 5% of all assets.

Liquid alternatives demonstrated their strengths compared to other asset classes during the challenging trading year of 2022. Although they ended the year with slightly negative performance of -1.49%, they significantly outperformed global equities, government and corporate bonds and unregulated hedge funds. Often managed in an extremely flexible way, many of these strategies are less dependent on the direction of the market, which means they can buck the general market trend and generate a profit even in falling markets. As a result, UCITS-compliant hedge fund strategies underscored their advantages for portfolio diversification and kept losses at the overall portfolio level to a minimum. This performance contrasts with the considerable outflows from the evaluated investment universe.

Both liquid alternatives strategies and equities deliver positive returns in the medium to long term. While liquid alternatives are almost on a par with unregulated hedge funds over three years, they leave these funds in their wake over five years. However, global and European equity investments beat all other asset classes over a longer observation period. The performance difference between liquid alternatives and equities shrank significantly over the past year due to weak equity performance.

Although the bond markets are considered to be safer and less prone to fluctuations, they are the worst performers of all of the evaluated asset classes over both three and five years, with considerable negative returns. However, this is also linked to the sharp rise in interest rates and the exceptionally high price losses associated with this during 2022.