New Analysis Finds Hedge Funds and Private Equity Failed to Beat the COVID Crash

Mar 23, 2021

WASHINGTON, DC — One year since the bottom of the COVID-19 market crash, American Compass’s Coin-Flip Capitalism Returns Counter has released its analysis of hedge fund, private equity, and venture capital’s performance during the first two quarters of 2020. Hedge funds in particular, which claim to provide a “hedge” against such market downturns, failed to prove themselves last spring.

The Returns Counter compares the hedge fund, private equity, and venture capital industries to the S&P 500 and a simple balanced portfolio (60% stocks and 40% bonds) to determine how they stack up against low-fee and low-risk approaches. Over the first two quarters of 2020:

  • Hedge funds were ineffectively “hedged” against the COVID crash and performed less successfully than the balanced portfolio, losing 1.5% in the first half of 2020 versus the balanced portfolio’s 1% gain.
    • Investors in hedge funds have sacrificed nearly 9 points of gain annually for the past decade but still saw steep declined in the first quarter’s COVID crash.
    • Overall, three-in-four hedge funds lost money, with some down as much as 40%.
  • Private equity seemed to perform better, due largely to their flexibility in reporting the value of their holdings.
    • Buyout funds beat the S&P 500 by 11% in the first quarter but then lagged the market’s surge in the second.
    • The year’s first half ended with a net zero return in buyout funds, compared to the S&P 500’s 3% loss.

These findings continue to show that private funds are underperforming simple index funds and failing to provide an effective hedge against downturns. Hedge funds fall far behind the performance of both the S&P 500 and a balanced portfolio, while private equity narrowly trails the market, as it has for the past decade.

Click here to view the full Returns Counter update.