Global Investment Report: Year-End Update

Some Especially Rare Hedge Funds

NilssonHedge – Linus: Hi Eric and welcome back. Today, we’ll be discussing something unique your firm Global Investment Report is doing that no other analyst has generated.

You’ve been tracking hedge funds for more than two decades for the likes of the Financial Times, Barron’s, Institutional Investor, and SALT, and now also presenting your finding through NilssonHedge. This consolidated list of managers you just released identifies those that have made your short list of the 50 most consistently performing managers for each of the past seven years since you adopted the current selection methodology for the edition published by The Wall Street Journal in 2019.

I should remind readers that to qualify for this list in any one year requires the highest 5-year annualized returns for each year while exceeding minimum performance hurdles for each of those preceding 5 years.

That means these few managers have been making money consistently for well over a decade, a very rare accomplishment for a hedge fund manager.

What did this short list reveal?

Global Investment Report – Eric: Glad to be here Linus.

Yes, I thought it time to look back and see what these surveys collectively reveal. Each report demands managers prove annual consistency to qualify in the Top 50. But qualifying for all seven reports since 2019 (each based on the trailing 5 years of returns ending in 2018) reflects an extraordinary level of consistency that most observers don’t associate with hedge funds.

Just like the annual survey, this diverse list doesn’t reflect the strongest performing managers running at least $300 million and with a minimum of 5 years in business.  There could be funds that delivered higher annualized returns over this period. But a manager that soared by say 50% one year but then was down -10% the next wouldn’t make the cut because he would fail to straddle annual hurdle rates.

Here are the basic takeaways: half this exclusive list is composed of the usual suspects (Citadel, D.E. Shaw, and Millennium); but the other half are little known and have grown in size since I started tracking them, suggesting their consistency, rather than eye-popping returns, is what’s been driving investors to them. This list includes the likes of Anson Investments (equity), Millstreet (credit), and Wolverine Flagship (multistrategy).

NilssonHedge – Linus: Eric’s latest article can be found here, where he dives deeper into the various funds.

In 2025 through November, 9 of these 12 funds produced returns averaging 13% and one is maintaining its persistent high-single-digit rate of return.  Two funds are underperforming and may not qualify for next year’s survey. But 10 will, reflecting an annual retention rate of more than 80%.

Simply put, that means that of the 50 funds that make my annual survey, 40 or more will subsequently deliver returns that beat the following year’s hurdle rate to qualify for the next survey. The 2024 hurdle rate was 6%.

Global Investment Report – Eric: Broadly, it tells me consistency can be found in various strategies regardless of fund size and regardless of what markets are doing. But here’s a more important distinction: fund selection driven initially by specific strategy exposure (i.e., a fund for each exposure bucket) may not produce the most consistent overall results. Identifying funds first by long-term consistency may do just that. Strategy diversity then inherently follows.

This idea, which is explained in the annual report, was the theme of a White Paper I co-wrote with Ben Crawford, head of research at Backstop BarclayHedge. That report was entitled: Challenging Convention.

Global Investment Report – Eric: Whether expected or not, the findings have been clear for many decades. Discard the notion of Headline Risk. That handicaps the selection process and builds in an undesirable bias–if consistent returns are the goal. However, this may not be possible for many allocators. But I believe a primary focus on headline risk helps explain why institutions like CalPERS struggled with hedge funds.

Second, robust and consistent due diligence–essential in selecting a hedge fund–should mitigate concerns about looking at lesser-known managers.

Third, there’s nothing wrong with investing in well-established big-name funds, if they are still open. But you will likely pay much more to be in them and your access to the PM will be limited if not impossible. That’s typically not the case when considering smaller managers.

Global Investment Report – Eric: Blue Diamond Non-Directional, the 23^rd-ranked Swiss-based statistical arbitrage fund, has been a perennially strong performer, averaging yearly gains of more than 14% since its launch in 2011. But it got tagged around the same time President Trump announced his tariffs. It has nearly made up all its double-digit losses as of the end of November. But it will struggle to exceed next year’s hurdle rate.

Same goes for Jason Mudrick’s distressed fund, which has been running higher volatility than normal over the past couple of years. This metric may have foreshadowed his 2025’s large drawdown. Still, the 28^th-ranked fund’s current loss of -17.5% is out of character for a manager that has generated 5-year annualized gains of 12.2% and 11.3% since its inception in 2009.

Whether theses funds have lost their all-season touch requires a deeper dive by potential investors to see if there has been any material change to key personnel or investment processes which drove these drawdowns.

The late Kent Clarke, who was co-chief investment officer of the Alternative Investments & Manager Selection Group and head of Hedge Fund Strategies at Goldman Sachs, always reminded me that one only rents hedge funds, and rotation was always part of the investment process.

Through my survey, I’ve been seeking to show it’s possible to find long-term consistency. I guess these findings show the merit of both arguments.

Global Investment Report – Eric: Here are just several traits:

1. A clear well-articulated strategy and return target;
2. A demonstrated passion for investing, a deep curiosity about how enterprises work and don’t work, and a deep commitment to sticking to a precise investment process.
3. A talented team that works well together with no fear of healthy open debate.
4. Ability and desire to research investments in person to learn about their people and operations.
5. Ability to identify the limits and weaknesses of a fund. All funds have them. Find out if PMs know how to deal with these issues when they arise.
6. Owners having skin in the game, along with timely and meaningful investor communications, are always good signs of LP and GP interests being aligned.
7. An investment rotation process that regularly takes profits, avoids frequent upward re-marking of price targets, and reinvests in the latest best ideas.
8. Disciplined stop-loss processes are often in place. These managers don’t ride down losing trades, though, they may trade around them. And if an investment thesis remains sound, PMs consider reestablishing positions. 

NilssonHedge – Linus: Your note highlights funds that have made your survey seven years in a row. Are there funds that are nearly as consistent, but didn’t make this cut?

Global Investment Report – Eric: Yes. And the sheer fact that these funds didn’t make the short list shouldn’t be seen as a mark against them. Some were not old enough to qualify; other times I may not have had access to historic fund data; and then there are some that may have had an off-year that some investors might tolerate, but which my methodology does not.

Here are some funds in that camp worth looking at. Two dominant themes emerge: credit and emerging markets.

Note: I’m not recommending any fund in this Q&A or in my annual report. But I am suggesting names that may be worth a deeper look.

8 Voss Capital Equity Long-Short

18 Context Partners Convertible Arbitrage Relative Value

19 Enko African Debt African Debt

27 BlueBay EM Credit Alpha Emerging Markets Credit

29 FengHe Asia Asian Emerging Market Equity

30 BlueBay Event Driven Credit European Credit

37 Waha Emerging Market Credit Emerging Market Credit

39 Boothbay Absolute Return Multistrategy

41 CRC Bond Opportunity Credit

42 Hudson Bay Multistrategy

8	Voss Capital Equity Long-Short
18	Context Partners Convertible Arbitrage Relative Value
19	Enko African Debt
27	BlueBay EM Credit Alpha Emerging Markets Credit
29	FengHe Asia Asian Emerging Market Equity
30	BlueBay Event Driven Credit European Credit
37	Boothbay Absolute Return Multistrategy
39	Boothbay Absolute Return Multistrategy
41	CRC Bond Opportunity Credit
42	Hudson Bay Multistrategy

Global Investment Report – Eric: Most hedge fund managers won’t respond meaningfully to this question mainly because they are focused on near-term opportunities and believe they can move out of the way and profit from a negative turn in market sentiment, even though managers rarely time these things just right.

David Einhorn’s Greenlight Capital may be an example. He performed very well during a rough first quarter. But his cautious stance resulted in a flat performance YTD thru September. Since then, markets have largely gone sideways and the fund has since rallied and ended November up 5.95%.

Allocators are a little more transparent in discussing these fears. Several European groups are lightening up on US assets as high valuations, continued transparency, and certainty about free markets are being challenged. Some are increasing their European exposure as governments lift spending constraints and many companies are getting upwardly rerated.

But when asked to show that shift in overall portfolio weighting, the response is more nuanced. In some instances, I’ll find a move away from US market-cap weighted index exposure to equally-weighted index exposure. I suppose that’s a way of reducing exposure to the Magnificent 7 and shifting to more value-oriented mid-cap exposure.

The more material change I’ve heard from allocators is increasing exposure to market neutral strategies and portable alpha. But I’m also hearing about rotation into strategies like Chinese stocks, which sounds like momentum chasing.

Bottom line: If markets become jittery, most risk-on investments will get tagged. But these managers should sell off less than the market.

NilssonHedge – Linus: Eric, always a pleasure to have you here. Thank you very much for your highly regarded report. More of Eric’s work can be found here.