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Wall Street was enthusiastic about the election of Donald Trump, but hedge funds actually generated higher alpha when a Democratic president was in the White House than when a Republican president was in the White House, according to data compiled by HFR dating back to 1991.
Compared to the S&P 500, the industry has underperformed regardless of who is president. But under the Democrats, the gap was about 183 basis points, with hedge funds averaging 10.16% annualized returns and the S&P 500 averaging 11.99%. The gap is 331 basis points. (1 basis point equals 0.01%.)
Compared to a bond index, HFR found that hedge funds owned by both parties outperformed the market – with alpha being stronger when a Democrat is in the White House.
Although Democrats have served six more years in the top office than Republicans since 1991, total net asset flows under Republican administrations (about $450 billion) are still higher than under Democratic administrations (about $400 billion).
Surprisingly, hedge fund participants’ election donation patterns favored one party over another. According to a recent report from Open Secrets, industry insiders donated $31 million to Democratic candidates in the 2024 election cycle, while nearly half of that amount ($16 million) went to Republican candidates.
The takeaway here, of course, is that hedge fund returns are far more correlated with the positioning of various asset class performance than with specific government policies. Therefore, it is difficult to make any predictions about how the industry will develop over the next four years.
Wednesday 14:00th annual Deliver Alpha eventswe should understand how fund managers are reconfiguring their portfolios.
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