Data sourced from Dakota Private Markets, the private fund performance platform powered by Dakota. Learn More | Request Access
A manager reports a 7% return over five years, and the committee’s first question is whether that’s good. The answer depends on which peer group you hold it against. Hedge funds are not one asset class. Long/short equity, global macro, multi-strategy, market neutral, and absolute return each have different return drivers, net exposure, and risk budgets, so a blended hedge fund number tells you how the category did and very little about whether a specific manager did well at what they said they would do.
Short windows look alike, long windows don’t
Over a single year, the major hedge fund strategies look a lot alike. Their typical returns sit close together, so if you only looked at that window, you would think the choice of strategy barely matters. Over ten years, that changes. Long/short equity pulls ahead of the other four strategies, which end up bunched together behind it. One good year mostly reflects the market a manager happened to trade in. Ten years shows what the strategy can actually deliver.
This changes how you read “top quartile.” A multi-strategy manager in the top quartile over ten years has had a great result compared with other multi-strategy managers, yet still trails the typical long/short equity fund. Both things are true, and they answer different questions. One is whether the manager was good at the strategy. The other is whether the strategy was the right one to own. A single blended hedge fund index mixes those two questions together, so allocators who use one can easily draw the wrong conclusion on both.
The range of results matters too. In every strategy, the gap between the best and worst performers is widest over short periods and narrows over longer ones. Early in a track record, results can be driven as much by luck and timing as by skill. Over a longer stretch, the managers with a repeatable process tend to separate from the rest.
Spotlight: Long/Short Equity
|
Metric
|
3rd Quartile
|
Median
|
1st Quartile
|
|
3yr Return
|
2.86%
|
6.77%
|
12.45%
|
|
5yr Return
|
3.03%
|
5.59%
|
7.50%
|
|
10yr Return
|
2.94%
|
6.01%
|
8.45%
|
Source: Dakota Private Markets hedge fund performance benchmarks.
Across 3,5, and 10 years, the median performance sits around 5-6%, but the spread around it narrows overtime. A 7.5% five-year return sits right at the top-quartile breakpoint for that window, while the same figure over three years lands closer to the median. Whether a manager looks like a leader or an average performer comes down to the window chosen, which is why we recommend reading rank across several horizons rather than relying on one headline return. Our custom benchmarking dataset is built for that kind of comparison.
Bottom line: The median tells you what a strategy earned. The quartile breakpoints tell you what a manager had to earn to be good at it.
Benchmark Hedge Funds by Strategy With Dakota Private Markets
Dakota Private Markets tracks hedge fund performance across multiple strategy types, including long/short equity, multi-strategy, global macro, absolute return, and market neutral, so you can place a manager against the right peer group and horizon.
To see quartile rankings for each strategy on live fund records, Request Access / Book a Demo.
