Hedge fund performance has improved against a backdrop of higher volatility in recent years.
The chart on the left shows implied volatility for equities, interest rates, and foreign exchange (FX). The dramatic rise in rate volatility has impacted all corners of the capital markets, and volatility looks to remain elevated in 2023.
The chart on the right highlights the relationship between implied volatility and hedge fund performance. Since 1990, hedge funds have seen their best performance when the VIX was between 20 and 25, and even managed to generate alpha in markets where the VIX was between 25 and 30. The combination of higher volatility and interest should support hedge fund performance going forward.