Traders work on the floor of the New York Stock Exchange.
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There’s been a rush of enthusiasm on Wall Street regarding Donald Trump’s election win, but hedge funds actually generate more alpha when the White House is occupied by a Democrat president than a Republican one, according to HFR, collating data going back to 1991.
When compared with the S&P 500, the industry underperformed regardless of who was president. But during Democratic administrations, the gap was about 183 basis points, with hedge funds delivering average, annualized returns of 10.16%, compared to 11.99% from the S&P 500. The underperformance gap during Republican administrations was 331 basis points. (1 basis point equals 0.01%.)
When compared with the a bond index, HFR found that hedge funds under both parties outperformed – with stronger alpha when a Democrat was in the White House.
The total net asset flows were higher under Republican administrations (about $450 billion) than Democratic ones (about $400 billion), even though since 1991, Democrats served six more years in the highest office than Republicans.
Surprisingly, the way that hedge fund participants donate in elections was a bit more tilted toward one party. According to a recent report by Open Secrets, in the 2024 election cycle, individuals in the industry donated $31 million to Democratic candidates, while almost half that amount — $16 million — went to Republican candidates.
Open Secrets
Of course the takeaway here is that hedge fund returns are far more correlated with positioning relative to various asset-class performances than particular policies by the administration. So, it’s hard to make any predictions about what the next four years entails for the industry.
At Wednesday’s 14th annual Delivering Alpha event, we should get a sense as to how money managers may be reconfiguring their portfolios.